Financial Analysis Scenario Drone Innovations, Inc. (DII…
Financial Analysis Scenario Drone Innovations, Inc. (DII) is a local drone manufacturer that is planning to launch a new drone that uses solar technology which will allow the drone to fly 100 times farther and 100 times longer than any existing drone on the market. Cost of research and development is $6,500,000 and the drone market size is currently measured at 60,000,000 of which DII currently serves 40%. Newspaper advertising will carry a coupon that will entitle the consumer to receive $20.00 off the price of each drone purchased. Research has shown that 50% of customers will redeem the coupon. (Hint: coupon redemption is a variable cost). The cost of the newspaper advertising (excluding coupon returns) will be $500,000. Other fixed costs will be $1 million per year. The cost to produce each drone at $40. The finding of several research studies has determined that consumers would be willing to pay $85 for each drone at which the retail selling price would be targeted. The retailer’s margin is 30% and the wholesaler’s margin is 15%. What is the company’s breakeven in units? What is the company’s breakeven in dollars? What is the company’s breakeven share of market as a percentage?
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Note: You MUST completely explain your rationale in order for any partial credit to be given. Write both your calculations and reasoning clearly. (Round partial units upward. Round percentages to one decimal point. Round currency to dollars and cents.) Virtual Concepts, Inc. (VCI) manufactures a line of DVD recorders (DVRs) that are distributed to large retailers. The line consists of four models of DVRs. The following data is available regarding the models: Model DVR Selling Price per Unit Variable Cost per Unit Demand/Year (units) Model VC1 $900 $250 1,535 Model VC2 $700 $150 2,865 Model VC3 $600 $125 3,535 Model VC4 $500 $100 3,300 VCI is considering the addition of a fifth model to its line of DVRs. This model would be sold to retailers for $950. The variable cost of this unit is $415. The demand for the new Model LX 5 is estimated to be 2,000 units per year. Fifty percent of these unit sales of the new model is expected to come from other models already being manufactured by VCI (10 percent from Model VC1, 30 percent from VC2, 40 percent from Model VC3, and 20 percent from Model VC4). VCI will incur a fixed cost of $520,000 to add the new model to the line. Based on the preceding data, should VCI add the new Model LX5 to its line of DVRs? Why or Why not? (Remember to show your work CLEARLY)
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