Cantor's has been busy analyzing a new product. Thus far, management has determined that an OCF

Cantor's has been busy analyzing a new product. Thus far, management has determined that an OCF of $218,200 will result in a zero net present value for the project, which is the minimum requirement for project acceptance. The fixed costs are $329,000 and the contribution margin per unit is $211. The company feels that it can realistically capture 2.5 percent of the 110,000 unit market for this product. The tax rate is 34 percent and the required rate of return is 11 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 IRR is less than the required rate of return. E.  No; The project will never payback on a discounted basis. Financial break-even point = ($329,000 + $218,200)/$211 = 2,593.36 units Expected sales = 110,000 × 0.025 = 2,750 units. The project should be accepted because the expected level of sales is greater than the financial break-even quantity.

84.

Tucker's Trucking is considering a project with a discounted payback period just equal to the project's life. The projections include a sales price of $38, variable cost per unit of $18.50, and fixed costs of $32,000. The operating cash flow is $19,700. What is the break-even quantity?    A.  631 units B.  1,211 units C.  1,641 units D.  2,301 units E.  2,651 units Qfinancial break-even = ($32,000 + $19,700)/($38 - $18.50) = 2,651 units

85.

You are in charge of a project that has a degree of operating leverage of 2.64. What will happen to the operating cash flows if the number of units you sell increase by 4 percent?    A.  15.84 percent decrease B.  2.27 percent decrease C.  no change D.  2.27 percent increase E.  10.56 percent increase Percentage change in OCF = 2.64 × 0.04 = 10.56 percent increase