Q5 A company has developed a new product for which there is currently no competition.

Q5 A company has developed a new product for which there is currently no

     competition. The company has spent $500,000 to develop the product, and has

     the following details to produce and sell the product:

                      Per Unit:

                                   Manufacturing Costs:            Selling & Admin:

                                          VC      $5.00                               $2.00

                                           FC       8.00                                 1.50

                      The minimum required rate of return (MRROR)  10%

The company expects to produce and sell 100,000 units of the product in the first year.

Require: 1. Determine the minimum selling price based on the above information

2. Show the sales and profitability if the company sells all the units produced

3. What would be the profit or loss if the company sold only 60% of the production

4. Comment on the risks in this approach.

[10 marks/12minutes]