Question

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product

Answer 1

Answer:

$20.25 per unit

Explanation:

Given that,

Amount invested in a new product = $750,000

Return on investment, ROI = 15%

Cost per unit = $18

Number of units expect to sell = 50,000 in the first year

Target total profit required:

= Investment × Return on investment

= $750,000 × 15%

= $112,500

Target per unit profit required:

= Target total profit required ÷ Number of units expect to sell

= $112,500 ÷ 50,000

= $2.25 per unit

Target-return price for this product:

= Target per unit profit required + Cost per unit

= $2.25 per unit + $18 per unit

= $20.25 per unit