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Problem:

Consolidated Drugs, Inc. has invested $4 million testing and developing the new anti-aging drug.  Management now estimates which it will cost $2 million to manufacture and market this new product.  The present value of total revenue from all prospect sales of this drug is estimated to be $5 million.  On the basis of such numbers, management is recommending dropping project since costs will exceed revenues.

Required:

a.) Do you agree with this suggestion? Describe.

b.) The head of accounting department points out that if the product is produced and marketed, $4 million of the corporate overhead expenditures will be assigned to product. Does this new information modify your answer to (a) Describe?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M910613

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