Clive Inc. has been busy analyzing a new product. Thus far, management has determined that an OCF

Question:

Clive Inc. has been busy analyzing a new product. Thus far, management has determined that an OCF of $218,200 will result in a zero net present value for the project, which is the minimum requirement for project acceptance. The fixed costs are $329,000 and the contribution margin per unit is $216.40. The company feels that it can realistically capture 2.5% of the 110,000 unit market for this product. The tax rate is 34% and the required rate of return is 11%.

Should the firm make new item? Why or why not?

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