Wermers Industries Incorporated Has Developed a New Drill Press, Model

question 338

Multiple Choice

Wermers Industries Incorporated has developed a new drill press, model LS-88, that is designed to offer superior performance to a comparable drill press sold by Wermers's main competitor. The competing drill press sells for $31,000 and needs to be replaced after 1,000 hours of use. It also requires $6,000 of preventive maintenance during its useful life. Model LS-88's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $7,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what is model LS-88's economic value to the customer over its 2,000 hour life?

• A) $62,000
• B) $36,000
• C) $67,000
• D) $43,000

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Definitions:

Dividend Per Share

The amount of dividend that a company pays out to each shareholder per share.

Trading Securities

Financial assets such as stocks and bonds held by an investor with the intent of selling them in the short term to profit from price fluctuations.

Unrealized Gains

Profits that have been achieved on paper due to an investment increasing in value but have not yet been cashed in by selling the asset.

Fair Value

A measurement of the price at which an asset or liability could be exchanged in an orderly transaction between market participants at the measurement date.