Precision Medicals makes medical instruments. It wishes to introduce a new line of electronic blood pressure gauges

Question:

Precision Medicals makes medical instruments. It wishes to introduce a new line of electronic blood pressure gauges for use in hospitals and homes. The company will set up a new division solely for this purpose, and the division manager will be fully responsible for all aspects of the business. After much research, the chief financial officer of the company put together the following table to evaluate this proposal.
Initial outlay ............ $22,250,000
Maximum production capacity ..... 100,000 units
Useful life ................ 15 years
at the end of useful life ....... zero
Unit variable cost .............. $85
Annual fixed costs (excluding depreciation) . $400,000
Required rate of return ............ 12%
Corporate tax rate ............... 25%
Expected annual sales .......... 80,000 units

Required:
Assume that the company wishes to maintain a stable pricing policy over the entire 15-year horizon. What is the minimum price per unit that the company needs to sell this product in order for this investment to be justifiable in the long run?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...