Company X,a Canadian manufacturer of chairs,is currently exporting $100,000 worth of chairs to the United States.The firm is considering opening a production facility in the United States that would produce enough chairs for the entire US market and is predicting total sales in the United States to be $500,000.When analyzing this project,Company X should:

Question

Quizplus · Accepted Answer

When analyzing the project, Company X should include the $100,000 as lost export sales in the capital budgeting analysis. This is because the $100,000 in exports represents an incremental cash flow that will be lost if the production facility in the United States goes ahead. The decision to open a production facility in the U.S. would result in these exports being replaced by sales produced domestically in the U.S., making the $100,000 in lost exports a relevant cost for the project.

Company X,a Canadian Manufacturer of Chairs,is Currently Exporting $100,000 Worth