Tillamook Farms invests in a new kind of frozen dessert called polar cream that becomes very
popular. So many new customers come to the store that the sales of existing ice cream products are
increased. The extra sales revenue
A) should be included in the analysis, but not the cost of the ice cream that is sold as that is a
recurring expense.
B) are synergistic effects that should be counted as incremental revenues for the polar cream
project.
C) are cannibalized sales that should be excluded from the analysis.
D) should not be counted as incremental revenue for the polar cream project because the sales
come from existing products.
Question 2
A bond with a 1,000 face value and a 10 percent annual coupon rate matures in 15 years.
a. Determine the value of the bond to a friend of yours with a required rate of return of 13.
b. A zero coupon bond with similar risk is selling for 180.
The bond has a face value of 1,000 and matures in
15 years. Your friend asks you which bond she should invest in, the zero coupon bond or the bond in part (a).
Which bond do you recommend, and why? Assume the market price of the bond in part (a) is 820.
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