Fargo AutoSupply, Inc. produces and distributes auto supplies. The company is anxious to enter the rapidlygrowing market for long-life batteries that is based on lithiumtechnology. Management believes that tobe fully competitive, the price of the new battery that the company isdeveloping cannot exceed $75. At thisprice, management is confident that the company can sell 60,000 batteries peryear. The batteries would require aninvestment of $3,000,000, and the desired ROI is 20%.
Required:
a) Computethe target cost of one battery.
b) IfFargo were to lower the price of the battery to $70, demand for the batterywould increase to 75,000 batteries. Theinvestment required would increase to $3,200,000 and the ROI would be 25%.Compute the target cost of one battery with these new parameters.
