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:

Evolutionary Psychologist

A professional who studies how evolutionary principles help explain the structure and function of the human mind and behavior.

Natural Selection

A fundamental mechanism of evolution where organisms better adapted to their environment tend to survive and produce more offspring.

Mental Processes

The internal, covert activities of the mind, such as thinking, feeling, and reasoning.

Ethology

The study of behaviors that are specific to a species.