Explain determining the minimum price to be charged

Reference no: EM1313424

Explain determining the minimum price to be charged for product which to be produced from new project

ABC Inc. wants to invest in a new project to develop a brand new product. The project requires an initial investment in equipment of $475,000 (25% CCA class). The project will also incur annual fixed costs of $93,500 and variable cost of $0.18 per unit. ABC expects to produce 200,000 units of the new product. The product and the equipment have a life expectancy of 5 years and the equipment can be sold for 7.5% of its original cost at the end of the 5 years. What is the minimum price at which this product should be sold to earn a minimum rate of return of 5.0% per year? ABC\'s corporate tax rate is 38.0%.

Reference no: EM1313424

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