(Appendix 12A)iBurst Technology Is Developing a High-Speed Modem to Connect

question 40

Essay

(Appendix 12A)iBurst Technology is developing a high-speed modem to connect notebook computers with iSun's satellite-based data network.The cross-functional team in charge of the project has assembled the following information:

$\begin{array}{ l r l } \text { Expected market price } & \$ 150 \\\text { Required return on sales } & 20 \% \\\text { Product life } & 3 \text { years } \\\text { Currently feasible cost } & \$ 50,000,000 \\\text { Expeoted average annual sales } & 100,000\end{array}$

Required:

a) Given the above information calculate the cost reduction target.
b) If the cross-functional team believes the cost of the modem cannot be reduced by any more than 18%, is this a feasible product for iBurst Technology? Why or why not?
c) Whether the cost reduction target is feasible or not, what can the cross-functional team do to further reduce cost?

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Definitions:

Present Values

The today's equivalent worth of a future money sum or cash flows, with a particular rate of return taken into account.

Net Cash Values

The amount of cash that could be received if a policy, such as life insurance, is surrendered to the company issuing the policy before its maturity or the insured event occurs.

Historical Relationships

The examination of past relationships among financial variables and their trends over time, used in forecasting and financial analysis.

Actual Bad Debts

Debts that have been specifically identified as uncollectible, following efforts to collect and evidence that repayment is unlikely.