Cantor's Has Been Busy Analyzing a New Product

question 62

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 $211.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 required rate of return exceeds the expected IRR.
• 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:

Withdrawals

Amounts of money taken out of an account, which can reduce the balance in banking or investment contexts.

Compounded Semiannually

Refers to the process of applying interest to a principal sum twice a year, leading to interest being added to the total amount on which future interest payments are calculated.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Payments

The transfer of money or its equivalent from one party to another as a fulfillment of an obligation or for the acquisition of goods or services.