**Answer:**

The company should not develop the new product as The operation cash flow is too low as compared to the OCF that results in zero NPV
.

**Explanation:**

In order to know if the company should develop the new product we would have to make the following calculations:

The No, of units the company expects to sell = Market share*Market size = 4.5%*120,000 = 5,400

Total contribution = No. of units sold*contribution margin per unit = 5400*87.20 = $470,880

Fixed costs = $418,000

Profit before tax = Total contribution - Fixed costs = $470,880 - $418,000 = $52,000

Net profit = (1-Tax rate)*Profit before tax = (1-34%)*$52,000 = $34,320

Since there are no depreciation costs(assumed), net profit is the operating cash flow.

Therefore, the company should not develop the new product as The operation cash flow is too low as compared to the OCF that results in zero NPV
.