Solar Confectionary develops a new candy bar and plans to sell each bar for $1.
ID: 2653877 • Letter: S
Question
Solar Confectionary develops a new candy bar and plans to sell each bar for $1. Solar predicts that 1 million candy bars will be sold in the first year if the new candy bar is produced and sold, and includes $1 million of incremental revenues in its capital budgeting analysis. A senior executive in the company believes that 1 million candy bars will be sold, but lowers the estimate of incremental revenue to $700,000. What would explain this change?
a lower discount rate
excessive marketing costs to sell the 1 million candy bars
cannibalization of 300,000 of Solar Confectionary' other candy bars
a higher selling price for the new candy bars
a lower discount rate
excessive marketing costs to sell the 1 million candy bars
cannibalization of 300,000 of Solar Confectionary' other candy bars
a higher selling price for the new candy bars
Explanation / Answer
Answer:
Introducing a new product may cannibalize the revenue of old products , hence in the present case te possible reason of net incremental revenue to be lower by $300000 is cannibalization of 300,000 of Solar Confectionary' other candy bars.
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