Company Y,a Canadian manufacturer of boats,is currently exporting $100,000 worth of boats to the United States.The firm is considering opening a production facility in the United States because without a presence in the United States,the entire US market would be lost to a competitor.The new facility would produce boats for about $800,000 and the firm anticipates total sales in the United States to be $900,000.When analyzing this project,Company X should:

Question

Quizplus · Accepted Answer

The exports of $100,000 are not an incremental cash flow from the project being analyzed, as they are already occurring. The purpose of analyzing the project is to determine whether the investment in the US production facility will be profitable, and the $100,000 of exports is not relevant to this analysis. Therefore, Company Y should ignore the exports of $100,000 since they are not incremental cash flows or part of the project.

Company Y,a Canadian Manufacturer of Boats,is Currently Exporting $100,000 Worth