The Outdoor Sports Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product: AccuDriver, a golf club that uses global positioning satellite technology to improve the accuracy of golfers’ shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment centre for Outdoor Sports:
Total annual fixed costs........... $30,000,000
Variable cost per AccuDriver $...... 500
Number of AccuDrivers sold each year..... 150,000
Average operating assets invested in the division. $48,000,000
REQUIRED
1. Compute Golf Technology’s ROI if the selling price of AccuDrivers is $720 per club.
2. If management requires an ROI of at least 25% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club?
3. Assume that Outdoor Sports judges the performance of its investment centres on the basis of RI rather than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the company’s required rate of return is 20%?