Care Products Company is considering a new product that will sell for P100 and havea variable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500 and having a five-year useful life and no salvage value is needed, and will be depreciated using the straight-line method. The machine has cash operating costs of P20,000 per year. The firm is in the 40 percent tax bracket and has cost of capital of 12 percent.The present value of 1, end of five periods is 0.56743; present value of annuity of 1 for 5 periods is 3.60478.

Suppose the 20,000 estimated volume is sound, but the price is in doubt. What is the selling price (rounded to nearest peso) needed to earn a 12 percent internal rate of return?

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To solve this problem we need to find the selling price that would result in a 12 internal rate of r... View the full answer