Fridges 4 Cafes Pty Ltd is developing a new type of commercial refrigerator called the Cold Master, that it plans to sell to Caf's and restaurants. Currently the market leader is a product called Cool Maid which is sold by a competitor. The managing director of Fridges 4 Cafes Pty Ltd has engaged a market research agency to help assess the appropriate selling price for the new fridge.

The agency has surveyed the market and determined the following data for the market leading fridge - the Cool Maid:

Selling Price $25,000 Installation Costs $400 Yearly maintenance cost $1,500 Expected useful life 6 years Disposal value zero

Engineering studies have determined that the Cold Master will require maintenance costs of $900 per annum and will have a useful life of nine years with a disposal value of zero. In addition, the new product has a higher energy rating than the Cool Maid so will use less electricity. The value of this improved functionality to the customer is estimated at $800. Customers will need to incur an average installation cost for the Cold Master of $500 per unit.

REQUIRED:

(a) Determine the economic value to the customer of the Cold Master by comparing against the Cool Maid (Do not consider the time value of money)

(b) What price should Fridges 4 Cafes Pty Ltd charge for the new product? Explain your answer.