Morice Industries Incorporated Has Developed a New Injection Mold, Model

question 188

Multiple Choice

Morice Industries Incorporated has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05'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 $8,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what is the differentiation value offered by model IA-05 relative to the competitor's offering for each 2,000 hours of usage?

• A) $68,000
• B) $60,000
• C) $6,000
• D) $108,000

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Definitions:

Prevailing Reinvestment Rate

The current market interest rate at which cash flows from an investment can be reinvested.

Compound Yield

The rate of return on an investment or loan, considering the effect of compounding interest.

Coupon Bond

A debt security that pays the investor periodic interest payments called coupons and returns the principal at the end of the maturity.

Par Value

Par Value is the face value of a bond or stock as stated by the issuer, which might not reflect its market value.