Question

Lasik Look produces and sells high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure distances on the golf course. The potential market for one small laser gun, the LittleLasik, appears to be very large. Because of competition, Lasik Look does not believe that it can charge more than $120 for LittleLasik. At this price, Lasik Look believes it can sell 100,000 laser guns. LittleLasik will cost $8,960,000 to manufacture, and the company wants an ROI of 20%.

Determine the target cost for one LittleLasik. (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

Target cost for one LittleLasik = Selling price of one LittleLasik / (1 + Required ROI) Selling price of one LittleLasik Required ROI Target cost for one LittleLasik $120 20% $100.00 ($120/(1 + 20%) = $120/(1+0.2) = $120 / 1.2 = $100.00] Verification: Target cost for one LittleLasik Add: Minimum required ROI Selling price of one LittleLasik $100 [As calculated above] $20 ($100 x 20%] $120 --> Matched with given selling price for one LittleLasik ($100 + $20]