You have determined that an OCF of $151,406 will result in a zero net present value for a project, which is the minimum requirement for project acceptance. The fixed costs are $387,200 and the contribution margin per unit is $56.11. The company feels that it can realistically capture 8.5 percent of the 140,000 unit market for this product. The tax rate is 21 percent and the required rate of return is 13 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 contribution margin is too high.
E) No; The OCF is too low.

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The Answer of You have determined that an OCF of $151,406 will result in a zero net present value for a project, which is the minimum requirement for project acceptance. The fixed costs are $387,200 and the contribution margin per unit is $56.11. The company feels that it can realistically capture 8.5 percent of the 140,000 unit market for this product. The tax rate is 21 percent and the required rate of return is 13 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 contribution margin is too high.
E) No; The OCF is too low.

You Have Determined That an OCF of $151,406 Will Result