Question

Laserspot is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, called Little Laser, appears to have a very large potential market. Because of competition, Laserspot does not believe that it can charge more than $80 for Little Laser. At this price, Laserspot believes it can sell 100,000 of these laser guns. LittleLaser will require an investment of $7,500,000 to manufacture, and the company wants an ROI of 16%. Determine the target cost for one LittleLaser.

Answer 1

Answer: $68

Explanation:

We will answer this question in steps yeah.

Okay.

LittleLaser requires a return on investment of 16% right.

The Investment is $7.5 million.

Then let's find out what 16% of that is.

= 16% * $7.5 million

= $1,200,000

That means the company requires an ROI of $1.2 million.

They believe they can sell 100,000 units so let's see the ROI per unit.

= $1,200,000/100,000

= $12 per unit.

Now, they believe they can sell at no more than $80 but require a $12 profit/ ROI.

The Target cost should include the profit but not exceed $80. That would mean,

= 80 - 12

= $68

The target cost for one LittleLaser given the target ROI and sales price is $68