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X Company is considering producing and selling a new product. After conducting a market research...

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Accounting

X Company is considering producing and selling a new product. After conducting a market research study that cost $5,000, company estimates are that sales of the product will be 8,500 units in each of the next four years, contribution margin per unit will be $6.10, and annual fixed costs will be $17,218.

In order to produce the new product, additional equipment would have to be purchased, costing $120,000, with no salvage value at the end of four years.

What is the internal rate of return of producing and selling this new product? [Use the present value tables in the Coursepack.]

A: 0.03 B: 0.04 C: 0.05 D: 0.06 E: 0.07 F: 0.08

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