Ask Question
BusinessBusiness
13 September, 05:07

You have determined that an OCF of $142,098 will result in a zero net present value for a project, which is the minimum requirement for project acceptance. The fixed costs are $418,000 and the contribution margin per unit is $87.20. The company feels that it can realistically capture 4.5 percent of the 120,000 unit market for this product. The required rate of return is 11 percent. Should the company develop the new product

+1
Answers (1)
  1. 13 September, 05:30
    0
    The company should not develop the new product as The operation cash flow is too low as compared to the OCF that results in zero NPV.

    Explanation:

    In order to know if the company should develop the new product we would have to make the following calculations:

    The No, of units the company expects to sell = Market share*Market size = 4.5%*120,000 = 5,400

    Total contribution = No. of units sold*contribution margin per unit = 5400*87.20 = $470,880

    Fixed costs = $418,000

    Profit before tax = Total contribution - Fixed costs = $470,880 - $418,000 = $52,000

    Net profit = (1-Tax rate) * Profit before tax = (1-34%) * $52,000 = $34,320

    Since there are no depreciation costs (assumed), net profit is the operating cash flow.

    Therefore, the company should not develop the new product as The operation cash flow is too low as compared to the OCF that results in zero NPV.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “You have determined that an OCF of $142,098 will result in a zero net present value for a project, which is the minimum requirement for ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Ficus, Inc. began business on March 1, 2018, and elected to file its income tax return on a calendar-year basis. The corporation incurred $800 in organizational expenditures.
Answers (1)
Mariah Company has inventory at the end of the year with a historical cost of $ 91 comma 000. Mariah Company uses the perpetual inventory system. Under the LCM rule, the current replacement cost is $ 71 comma 600. The company uses LIFO. Under U. S.
Answers (1)
A contract provision that is exculpatory in nature and is intended to bar the contractor from receiving monetary compensation of any kind for any delays that may occur on a project, regardless of the source of delay is called
Answers (1)
Commercial banks are funded through which of the following
Answers (1)
The constitution sets forth specific powers that can be exercised by the national government and provides that the national government has the implied power to undertake actions necessary to carry its expressly designated powers.
Answers (1)
New Questions in Business
Which of the following is a strategy that you can use to protect yourself from the risks involved in owning a home? Pay PMI. Buy a product warranty. Purchase homeowner's insurance. Take advantage of the Truth in Lending Act.
Answers (1)
Sunset Foods relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations.
Answers (1)
Ignoring issues of the statute of frauds, is there a contract for the sale of vinny's celica?
Answers (1)
The management of Retz Corporation is considering the purchase of a new machine costing $500,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.
Answers (1)
Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially.
Answers (1)
Home » Business » You have determined that an OCF of $142,098 will result in a zero net present value for a project, which is the minimum requirement for project acceptance. The fixed costs are $418,000 and the contribution margin per unit is $87.20.
Sign Up Forgot Password?