Video Concepts Inc. (VCI) manufactures a line of DVD recorders that it distributes to mass market retail chains. VCI has three products in its line, LX1, LX2, and LX3. LX1 sells for $175 with a contribution margin (CM) of 43%. LX2s contribution is equal to its variable cost at $125. LX3s $160 contribution represents 53% of its price. Annual forecasts for LX1, LX2, and LX3 are 2000 units, 1000 units, and 500 units, respectively.

VCI is considering adding a higher priced model, LX4 with a variable cost of $225 against a price of $375. Demand is estimated to be 300 units per year. 60% of unit sales will probably be cannibalized from VCIs existing line, as follows: 10% from LX1, 30% from LX2, and 60% from LX3. The rest will be taken from competition.

Given a required investment of $20,000 to launch LX4, would you recommend this project? Please fully explain why, or why not.