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 1 year ago

Next > < Previous

Related Solutions

Maize Water is considering introducing a water filtration device for its 20-ounce water bottles

Maize Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,000,000 units can be sold if the price is no more than $3. If Maize Water decides to produce the filters, it will need to invest $2,000,000 in new production equipment. Maize Water requires a minimum rate of return of 15% on all investments. Determine the target cost per unit for the filter. (Round answer to 2 decimal places, e.g. 10.50.) Target cost...

A small café is considering replacing one of its waitstaff with a ‘robot’ – a device...

A small café is considering replacing one of its waitstaff with a ‘robot’ – a device that will take orders, deliver food and interact with customers in an entertaining way. The cost of the robot is $225,000. From the salary savings and the extra customers the robot is expected to attract, it is estimated that the net inflows from the idea will be: • Year 1: $95,100 • Year 2: $80,000 • Year 3: $60,000 • Year 4: $55,000 It...

Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board...

Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $80,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay...

A. Caspian Sea Drinks is considering the purchase of a new water filtration system produced by...

A. Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.08 million per year and increased operating costs of $789,667.00 per year. Caspian Sea Drinks' marginal tax rate...

A. Caspian Sea Drinks is considering the purchase of a new water filtration system produced by...

A. Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $12.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.72 million per year and increased operating costs of $644,288.00 per year. Caspian Sea Drinks' marginal tax rate...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $14.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.25 million per year and increased operating costs of $620,226.00 per year. Caspian Sea Drinks' marginal tax rate is...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $12.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.19 million per year and increased operating costs of $751,841.00 per year. Caspian Sea Drinks' marginal tax rate is...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $12.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.87 million per year and increased operating costs of $790,526.00 per year. Caspian Sea Drinks' marginal tax rate is...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.81 million per year and increased operating costs of $794,637.00 per year. Caspian Sea Drinks' marginal tax rate is...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube...

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $12.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.89 million per year and increased operating costs of $518,515.00 per year. Caspian Sea Drinks' marginal tax rate is...

Subjects