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28 October, 01:16

Silver Lining Cloud Storage is considering introducing a compact storage device that stores data for companies. Market research shows that 250,000 units can be sold if the price is no more than $18. If Silver Lining decides to produce this device, it will need to invest $500,000 in new equipment. Silver Lining requires a minimum rate of return of 25% on all investments. Determine the target cost per unit for the storage device.

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  1. 28 October, 03:01
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    Target cost per unit is $17.50

    Explanation:

    Selling price per unit $ 18 (We can say market price)

    Units can be sold 2,50,000

    Investment is $ 5,00,000

    Rate of return is 25% on all investments (We can say desired profit)

    Target cost per unit = Market Price per unit - Desired Profit per unit

    = $ 18 - $ 0.5

    = $ 17.50

    Desired Profit per unit = Total Desired Profit / Number of units can be sold

    = ($ 5,00,000 * 25%) / 2,50,000

    = $ 1,25,000 / 2,50,000

    = $ 0.5
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