Question
A company has a new hot drink in mind that is expected to generate sales of 24,000 units over its 2-year life. The initial cost
A company has a new hot drink in mind that is expected to generate sales of 24,000 units over its 2-year life. The initial cost for equipment is $69,500. This equipment will be depreciated straight-line to zero over 2 years and have no salvage value. The fixed costs are $17,800, and the contribution margin is $2.20. The tax rate is 35 percent, and the discount rate is 14 percent. Should this new drink be pursued? Why or why not?
a) Yes; because the financial break-even quantity of 18,648 units is less than expected sales
b) Yes; because the financial break-even quantity of 19,014 units is less than expected sales
c) No; because the financial break-even quantity of 29,101 units exceeds the expected sales
d) Yes; because the financial break-even quantity of 29,101 units exceeds the expected sales
e) No; because the financial break-even quantity of 19,014 units is less than expected sales
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