Little River Cycles (LRC) produces and distributes carbon fibre road bikes. Management is eager to take advantage of the growing market for these bikes. To be competitive, LRC’s sales manager estimates that the bike can’t be priced at more than $2,000. At this price, management thinks the company can sell 1,000 bikes per year. Producing the bikes will require an initial investment of $2,000,000, and the company’s target ROI is 25%.
Required:
Calculate the target cost of one carbon fibre road bike.