Monrovia is considering investing in R&D to improve its product and offer more features. The cost...
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Monrovia is considering investing in R&D to improve its product and offer more features. The cost of innovation is $ 500,000. The current per unit selling price of the product in the market fluctuates between $110 and $ 130. The per unit variable cost currently stands at $ 100. Over the last several years variable costs have been steadily increasing at the rate of 2% per year. The total market size for the products sold is 5,000,000 units. The market on average has registered growth between 29% and 5% over the last several years. Their market share has been steady at around 5%. Monrovia also operates in an industry where the buyers are quite powerful. The estimated price elasticity of demand is that a 1.1 X times price increase leads to a 30% decline in quantity demanded. Further assume that the cost of capital for the firm is 7%. What is the projected cost of this investment? Monrovia is considering investing in R&D to improve its product and offer more features. The cost of innovation is $ 500,000. The current per unit selling price of the product in the market fluctuates between $110 and $ 130. The per unit variable cost currently stands at $ 100. Over the last several years variable costs have been steadily increasing at the rate of 2% per year. The total market size for the products sold is 5,000,000 units. The market on average has registered growth between 29% and 5% over the last several years. Their market share has been steady at around 5%. Monrovia also operates in an industry where the buyers are quite powerful. The estimated price elasticity of demand is that a 1.1 X times price increase leads to a 30% decline in quantity demanded. Further assume that the cost of capital for the firm is 7%. What is the projected cost of this investment?
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Answer rating: 100% (QA)
SOLUTION To project the cost of the investment in RD we need to estimate the additional revenue that the improved product will generate and compare it ... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
Posted Date:
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