Cantor's Has Been Busy Analyzing a New Product

question 87

Multiple Choice

Cantor's has been busy analyzing a new product. Thus far, management has determined that an OCF of $218,200 will result in a zero net present value for the project, which is the minimum requirement for project acceptance. The fixed costs are $329,000 and the contribution margin per unit is $216.40. The company feels that it can realistically capture 2.5 percent of the 110,000 unit market for this product. The tax rate is 34 percent and the required rate of return is 11 percent. Should the company develop the new product? Why or why not?

• A)Yes; The project's expected IRR exceeds the required rate of return.
• B)Yes; The expected level of sales exceeds the required level of production.
• C)No; The required level of production exceeds the expected level of sales.
• D)No; The IRR is less than the required rate of return.
• E)No; The project will never payback on a discounted basis.

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Definitions:

Tibialis Anterior

A muscle located in the front part of the lower leg, responsible for dorsiflexion and inversion of the foot.

Gastrocnemius

A major calf muscle that's involved in walking, running, and jumping, contributing to the plantar flexion of the foot at the ankle.

Soleus

A powerful muscle in the lower leg that is involved in standing and walking; it runs from just below the knee to the heel.

Extensor Digitorum Longus

A muscle in the leg that helps to extend the toes and dorsiflex the foot.