PrimeFocus is the flagship product of Zenith Enterprises. PrimeFocus, priced at $8 with a margin of 35%, is projected to sell 3000 units next year. Zenith Enterprises is also considering the launch of a new product, NovaTech, with a selling price of $10 and a margin of 60%. Zenith Enterprises predicts that if NovaTech is introduced, it will sell 5000 units in the upcoming year. However, market research suggests that 25% of NovaTech's unit sales will come from cannibalizing sales of Prime Focus (these are the customers who will switch from Prime Focus to NovaTech). Additionally, launching NovaTech will incur fixed costs of $10,000. 

a) What is the dollar amount of cannibalization? 

b) What is the incremental profit impact generated by introducing NovaTech? 

c) Zenith Enterprises has ultimately decided to launch NovaTech. They are now deliberating on discontinuing Prime Focus in the upcoming year. If Prime Focus is discontinued, the sales of Nove Tech are projected to increase by 20%. Additionally, discontinuing Prime Focus will incur no fixed cost for the company.

 

Should the company discontinue Prime Focus? Justify your answer.