Thompson & Son Has Been Busy Analyzing a New Product

question 6

Multiple Choice

Thompson & Son has been busy analyzing a new product. It has determined that an operating cash flow of $16,700 will result in a zero net present value,which is a company requirement for project acceptance. The fixed costs are $12,378 and the contribution margin is $6.20. The company feels that it can realistically capture 10% of the 50,000 unit market for this product. Should the company develop the new product? Why or why not?

• A) Yes; because 5,000 units of sales exceeds the quantity required for a zero net present value
• B) Yes; because the internal break-even point is less than 5,000 units
• C) No; because the firm cannot generate sufficient sales to obtain at least a zero net present value
• D) No; because the project has an expected internal rate of return of negative 100%
• E) No; because the project will not pay back on a discounted basis

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Definitions:

Skilled Employee Technicians

Skilled employee technicians are workers with specialized skills and knowledge, typically in technical fields, who perform specific tasks or services.

Plant Location

The geographical site chosen for situating industrial operations or manufacturing facilities, based on criteria like cost, resources, and logistics.

Modern Production Facilities

Industrial or manufacturing plants that utilize the latest technology, equipment, and processes to increase efficiency, productivity, and quality of products.

CAD

Computer-Aided Design, technology used by engineers, architects, and designers to create precision drawings or technical illustrations.