Spot-On Wants to Begin Manufacturing and Selling a New Product

question 33

Multiple Choice

Spot-On wants to begin manufacturing and selling a new product, the Sporty Spot.Spot-On requires a 25% gross margin on all new products.Marketing research indicates customers are interested in purchasing the Sporty Spot.If the production supervisor has agreed to produce the Sporty Spot at its target cost of $6.75 per unit, what is the price customers are willing to pay for the Sporty Spot (if necessary, round your answer) ?

• A)$5.40
• B)$27.00
• C)$8.44
• D)$9.00

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Definitions:

Listed Call Options

Financial derivatives traded on exchanges that give the buyer the right, but not the obligation, to buy a stock at a specified price within a certain time frame.

Convertible Bond

A type of bond that can be converted into a predetermined amount of the issuer's equity at certain times during its life, usually at the discretion of the bondholder.

Call Option

An option contract giving the owner the right, albeit without obligation, to purchase a specific asset at a set price within a defined timeframe.

Expiration Date

The date on which a derivative contract such as an option or futures expires, and is no longer valid.