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?