Question 7 [5 pts]

Sport Science International is considering launching a new sports drink Devil-Ade [not related to Questions 46]. With its improved formula, Devil-Ade is expected to penetrate the market quickly. However, Devil-Ade is likely to appeal to the consumers who currently buy the companys existing product Warrior-Ade. The sales volume of Warrior-Ade is currently 20 million bottles per year and is expected to decline by 20% when Devil-Ade is introduced to the market. The unit sale price and the unit cost of Warrior-Ade are $3.5 and $2.0, respectively. Estimate the opportunity cost per year (i.e., forgone cash flow from the existing product) by taking into account a marginal tax rate of 25% for Sport Science International.

Answer (show the steps/calculation toward your results):