Thompson & Son Has Been Busy Analyzing a New Product

question 42

Multiple Choice

Thompson & Son has been busy analyzing a new product.Management 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.Management feels that they can realistically capture 10 percent 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 percent
• E)no; because the project will not pay back on a discounted basis