You are an analyst with Pecknold Co., a company that makes high-end guitars. Their current guitar model is called the "Ragged Wood", and the company sells about 500 of these guitars a year at a price of $3,000 each. This guitar costs the company $1,500 per unit to manufacture. Pecknold Co. is planning on launching a new guitar model called the "Cassius," which will retail for $4,000, and the company will sell about 200 of these units per year. Similarly to the Ragged Wood", the "Cassius" guitar model will cost the company $1,000 per unit to manufacture. After doing some calculations, you estimate that launching the "Cassius" guitar model will reduce the projected sales of the existing "Ragged Wood" model by about 40%. Calculate the erosion cost if the product is launched. Calculate the incremental cash flow if the product is launched. $ If you were judging whether to accept or reject the guitar-related project discussed above, which of the following choices best describes the "correct" approach? O A. You would have chosen to make and sell the "Cassius" guitar becuase it is associated with a higher profit margin for each guitar sold than the "Ragged Wood" model. O B. You would have chosen to make and sell the "Cassius" guitar becuase it generates positive incremental cash flow for the company. OC. You would have chosen to make and sell the "Cassius" guitar becuase it generates positive EBIT for the company. OD. You would have chosen NOT to make and sell the "Cassius" guitar becuase it is associated with positive erosion costs. You are an analyst with Pecknold Co., a company that makes high-end guitars. Their current guitar model is called the "Ragged Wood", and the company sells about 500 of these guitars a year at a price of $3,000 each. This guitar costs the company $1,500 per unit to manufacture. Pecknold Co. is planning on launching a new guitar model called the "Cassius," which will retail for $4,000, and the company will sell about 200 of these units per year. Similarly to the Ragged Wood", the "Cassius" guitar model will cost the company $1,000 per unit to manufacture. After doing some calculations, you estimate that launching the "Cassius" guitar model will reduce the projected sales of the existing "Ragged Wood" model by about 40%. Calculate the erosion cost if the product is launched. Calculate the incremental cash flow if the product is launched. $ If you were judging whether to accept or reject the guitar-related project discussed above, which of the following choices best describes the "correct" approach? O A. You would have chosen to make and sell the "Cassius" guitar becuase it is associated with a higher profit margin for each guitar sold than the "Ragged Wood" model. O B. You would have chosen to make and sell the "Cassius" guitar becuase it generates positive incremental cash flow for the company. OC. You would have chosen to make and sell the "Cassius" guitar becuase it generates positive EBIT for the company. OD. You would have chosen NOT to make and sell the "Cassius" guitar becuase it is associated with positive erosion costs
