The Colby Brothers Have Been Busy Analyzing a New Product

The Colby Brothers have been busy analyzing a new product. They have determined that an operating cash flow of $18,200 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $11,650 and the contribution margin is $7.40. The company feels that they can realistically capture five percent of the 75,000 unit market for this product. Should the company develop the new product? Why or why not?

A) Yes; The project has an expected internal rate of return of 100 percent.
B) Yes; The expected level of sales exceeds the required number of units.
C) Yes; The project is expected to sell 324 units more than the required number of units.
D) No; The expected level of sales is less than the required level of 4,034 units.
E) No; The annual sales would need to exceed 4,521 units to be acceptable.