Question 24 Adam Leisure Ltd manufactures and supplies teddy bears called \"SuperBears\

Question 24 Adam Leisure Ltd manufactures and supplies teddy bears called "SuperBears", packaged in boxes, to several toy stores. The company makes "SuperBears" by putting on fashionable shirts, sewn by Special Machine, on teddy bear bodies called "BasicBears". Adam Leisure originally purchased 800,000 teddy bear bodies "BasicBears" from an overseas supplier for the sole purpose of making "SuperBears". Each "BasicBears" cost $5 and 665,000 of them still remain in stock. Every year, Adam Leisure has the capacity to be able to manufacture 300,000 of "SuperBears". However, at the end of last year, it only manufactured and sold 132,000 units to the toy stores. This loss of sales was due a new manufacturer entering the market and selling similar teddy bears at competitive prices. You have been given the following information per each "SuperBears": Sellin Price Costs "BasicBears" Shirts Boxes Direct Manufacturin Labour reciation of the S ecial Sewin Allocated Plant Mana er's S Marketin Costs "S erBears" Unit Profit Machine $25 $5 $2 $1 $3 $4 $3 $3 $4 Toys-R-With-Us has approached Adam Leisure to supply 100,000 "SuperBears" at a discounted price of $22 per unit. Adam Leisure will not need to incur any money to market for this special sale to Toys-R-With-Us and will receive payment ilnmediately. Adam Leisure predicts that for the next 4 years, it will sell at the present level of demand of 132,000 "SuperBears" to its cunent customer base. Thereafter, no teddy bears will be sold and hence Adam Leisure will dispose the Special Sewing Machine and all unsold "BasicBears". All of these items will have no resale value. If Adam Leisure accepts the Toys-R-With-Us order, inevitably its other customers will insist on a discount. Adam Leisure will therefore have to carefully evaluate the offer in order to ensure profitability. Adam Leisure uses a discount rate of 12% for evaluating its long term projects. Req uired i) Would you advise Adam Leisure Ltd to take on the special order from Toys-R-With-Us even if the company has to sell all its "SuperBears" at a discounted price of $22 each to its other customers for the next 4 years? Quantify your answer in the opposite page. (4 marks) ii) Assuming that the company is unsure about the amount of discount its other customers would insist on, find out the price that company would have to offer its other customers for the next 4 years to be indifferent between accepting or rejecting the special order made by Toys-R-With-Us. Round your fmal answer to 2 decimal places. Answer: [S (3 marks)