Question

d) Sportswear brand Locaf will put on sale what it claims to be the world's first computerized "smart shoe.” However, consumers will decide whether to accept the $300 price tag–four times the average shoe price at stores for bionic sneakers. Locaf uses sensors, a microprocessor, and a motorized cable system to automatically adjust the cushion of the shoe. The sensors under the heel measure compression and determine whether the shoe is too soft or too tight. That information is sent to the microprocessor and the cable adjusts the heel cushion while the shoe is in the air. The whole system weighs less than 40 grams. Locaf Auto-Force, computer driven shoe-three years in the making is the latest innovations in the US sneaker industry worth $16.4 billion. The top-end running shoe from Prespecs lists for $199.99. With runners typically replacing shoes every 500 kilometers, the $300 Auto-Force could push costs to 60 cents per kilometer. Locaf is spending an estimated $20 million on the rollout. The investment required to develop a full-fledged commercial rollout is $80 million (including the $20 million ad campaign), which will be financed at an interest rate of 12%. With a price tag of $300, Locaf will earn about $120 net cash profit from each sale. The product will have a five-year market life. Assuming that the annual demand for the product remains constant over the market life, how many units does Locaf have to sell each year to pay off the initial investment and interest?

Answer 1

Initil Incestment = 80,000,000

Interest per year @ 12 % = 9,600,000

Total Amount neeed to be recovered over five years = 80,000,000 + 9,600,000*5

= 80,000,000+48,000,000

=128,000,000

Contribution by Each unit sold = 120

Unit need to be sold for recovering total investment with interest over 5 years = 128000000/120 = 1,066,666 units

Each years = 1066666/5

= 213,333 units