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Clear Water is considering introducing a water filtration device for its one-litre water bottles

Clear Water is considering introducing a water filtration device for its one-litre water bottles. Market research indicates that 1,000,000 units can be sold if the price is no more than $3. If Clear Water decides to produce the filters, it will need to invest $2,200,000 in new production equipment. Clear Water requires a minimum rate of return of 20% on all investments.

Determine the target cost per unit for the filter.

Target cost per unit = $_______ 

Solutions

Expert Solution

Rate of return = $2,200,000 X 20% = $440,000

Rate of return per unit = $440,000 / 1,000,000 = $0.44

Selling price per unit = $3

Cost per units = $3 - $0.44 = $2.56

ekkarill92 answered 2 years ago
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