3. McDermott Company has developed a new industrial component called IC-75. The company is excited about IC-75 because it offers superior performance relative to the comparable component sold by McDermotts primary competitor. The competing part sells for $1,240 and needs to be replaced after 2,040 hours of use. It also requires $220 of preventive maintenance during its useful life.

The IC-75s performance capabilities are similar to its competing product with two important exceptionsit needs to be replaced after 4,080 hours of use and it requires $320 of preventive maintenance during its useful life.

Required:

From a value-based pricing standpoint:

What is the reference value that McDermott should consider when pricing IC-75?

What is the differentiation value offered by IC-75 relative the competitors offering for each 4,080 hours of usage?

What is IC-75s economic value to the customer over its 4,080-hour life?

What range of possible prices should McDermott consider when setting a price for IC-75?

4. Shimada Products Corporation of Japan plans to introduce a new electronic component to the market at a target selling price of $15 per unit. The company is investing $11,880,000 to purchase the equipment it needs to produce and sell 396,000 units per year. Its required rate of return on all investments is 12%.

Required:

Compute the components target cost per unit. (Round your answer to 2 decimal places.)