Send it into Orbit Golf Inventions is considering introducing a new high velocity long distance golf ball. The company believes that if the golf balls can be priced competitively at $36 per box of 12, approximately 50,000 boxes can be sold.

The CFO (Chief Financial Officer) has determined that an investment in new manufacturing equipment will be necessary. The cost of the new equipment to manufacture the balls will be $965,000.

Send it in Orbit requires a minimum rate of return of 20% on all investments, therefore, if the company was to pursue this new golf ball market, their minimum return of 20% on all investments would mean that profit necessary from investing in the new equipment would be $965,000 x 20% = $193,000.

Instructions

1. Base on the companys minimum rate of return of 20%, compute the target cost per box of balls.

2. What would the target cost per box be if the company were willing to accept a return of 10% instead of 20%?

3. What qualitative factors should the company consider in evaluating the above opportunity?