from the sale of new books. Thus, it is important to examine whether the new book would displace sales
of used books (good from the publisher’s perspective) or new books (not good). The concern arises any
time there is an active market for used product.
8. Definitely. The damage to Porsche’s reputation is definitely a factor the company needed to consider. If
the reputation was damaged, the company would have lost sales of its existing car lines.
9. One company may be able to produce at lower incremental cost or market better. Also, of course, one of
the two may have made a mistake!
10. Porsche would recognize that the outsized profits would dwindle as more product comes to market and
competition becomes more intense.
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps.
Due to space and readability constraints, when these intermediate steps are included in this solutions
manual, rounding may appear to have occurred. However, the final answer for each problem is found
without rounding during any step in the problem.
1. The $6 million acquisition cost of the land six years ago is a sunk cost. The $6.4 million current aftertax
value of the land is an opportunity cost if the land is used rather than sold off. The $14.2 million cash
2. Sales due solely to the new product line are:
is relevant. The net sales figure to use in evaluating the new line is thus:
$247,000,000 + 238,500,000 – 81,900,000 = $403,600,000