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: A's sales will go down, one time, by 25% while B's sales go up, one time, 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. 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. (Hint: is this an allocated cost or opportunity cost?) A warehouse, that is owned by the company (and currently rented out for $400/year) will be dedicated to C's storage. (Hint: is this an allocated cost or opportunity cost?) Tax rate is 20%. An asset purchase is required at a cost of $2,000 today. Asset is expected to depreciate straightline to zero in five years with an expected market value of $300 in five years. 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. 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. 

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

Answer rating: 100% (QA)

To determine whether introducing product C to the market is financially viable we need to calculate ... View the full answer