Regarding market share and government support, consider the following:

(a) The product project team decides to seek a larger market share by lowering the price. Repeat Example 19.2 with the following sales projection:

To accommodate the increased production, the engineering team recommends that the equipment cost be increased to \(\$ 7 M M\). Use the five-year property class in the Modified Accelerated Cost Recovery System for depreciation. The market value of the equipment after three years is \(\$ 3.5 \mathrm{MM}\).

(b) If the government supports the product-development project with a \(\$ 5 \mathrm{MM}\) grant payable at the start of the product-development period, what is the impact on the investor's rate of return?

Data From Example 19.2:-

Sales are expected to pick up slowly after product launch as consumers start to take note of the air purifier. However, sales and the unit price tend to decrease at some point in time (Figure 1.2). After a careful review, the marketing team suggests a more realistic estimate of the sales volume and a pricing strategy in the following table.

To accommodate the increased production in the second year, the engineering team recommends that the equipment cost be increased to \($5MM\). Use the five-year class life in the Modified Accelerated Cost Recovery System for depreciation. The market value of the equipment after three years is now estimated to be $2.5MM.

Figure 1.2:-

Transcribed Image Text:

Year Unit Sales Selling Price, $ Revenues, $1000 1 50,000 300 12,500 23 90,000 275 20,250 70,000 250 14,000