Quirk and Company Has Been Busy Analyzing a New Product

Multiple Choice

Quirk and Company has been busy analyzing a new product. It has determined that an operating cash flow of $18,500 will result in a zero net present value,which is a company requirement for project acceptance. The fixed costs are $14,000 and the contribution margin is $8.00. The company feels that it can realistically capture 10% of the 40,000 unit market for this product. Should the company develop the new product? Why or why not?

A) No; because 4,000 units of sales is less than the quantity required for a zero net present value
B) No; because the internal break-even point is greater than 4,000 units
C) Yes; because the firm can generate sufficient sales to obtain at least a zero net present value
D) Yes; because the project has an expected internal rate of return of 100%
E) Yes; because the project will pay back on a discounted basis