The Perfect House Company Produces Two Types of Bathtub, the Hydro

question 96

Short Answer

The Perfect House company produces two types of bathtub, the Hydro Deluxe model and the Singing Bird model. The company noticed that demand and prices are related. In particular,
for Hydro Deluxe: demand = 1300 - price of Hydro Deluxe + price of Singing Bird
for Singing Bird: demand = 1450 + price of Hydro Deluxe -2(price of Singing Bird).
The costs of manufacturing the Hydro Deluxe and Singing Bird are $500 and $300 per unit respectively. Determine the price of each model that gives the maximum profit.

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Definitions:

NPV Projects

Projects that are evaluated based on the Net Present Value method, which calculates the present value of future cash flows minus the initial investment cost.

Debt/Equity Ratio

The ratio that highlights the proportional use of debt and shareholders' equity in asset financing for a company.

Stripped Common Shares

Common stock on which dividends and capital gains are repackaged and sold separately.

Dividends

Payments made by a corporation to its shareholders, usually derived from the company's profits, as a reward for investing in the company's equity.