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Should c be introduced to the market

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Dinvi Inc. is currently selling two products, A, and B, 200 units and 100 units per year respectively at a price of $50/unit.

Dinvi is considering introducing a new product, C, to the market. Company is projecting that:

  1. A's sales will go down by 25% while B's sales go up by 20% and stay there as long as C is available in the market. Per unit price of C is $40 and variable costs are $12.
  2. 20% of the existing office space will accommodate the sales/managerial activities of the new product line without disrupting the existing operations. The entire office space has rental/utility fixed costs amounting to $1,000 per year.
  3. A warehouse, that is owned by the company (and currently rented out for $400/year) will be dedicated to C's storage.
  4. Tax rate is 20%.
  5. An asset purchase is required at a cost of $2,000 today. Asset is expected to depreciate straight- line TO ZERO in five years with an expected market value of $300 in five years.
  6. Sales will start next year and expected to be 200 units for the first three years and go up to 300 units for the last two years.
  7. An immediate increase of $50 in NWC will be needed (with no other increases necessary in the subsequent years) that is expected to be recovered in five years.

Question a) If the market rate for Dinvi is 5%, should C be introduced to the market?

Reference no: EM132549591

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