Stone Company is considering introducing a new line of pagers, targeting the preteen population. Stone believes that if the pagers can be priced competitively at $45, approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Stone Company requires a minimum rate of return of 16% on all investments, therefore, if Stone company was to pursue this pager market, their minimum return of 16% on all investments would mean that profit from investing in the new equipment would be $4,000,000 x 16% =$640,000

Instructions 1. Base on Stones minimum rate of return of 16%, compute the target cost per unit of the pager. 2. What would the target cost be if Stone were willing to accept a return of 12% instead of 16%? 3. What qualitative factors should Stone consider in evaluating the above opportunity?