Abitibi Pulp Ltd $\bullet$ Marketing Analysis Indicates Technology Companies in Silicon Valley Will Buy

question 26

Essay

Abitibi Pulp Ltd.is considering a new product line for its existing table business.It has developed a new type of computer table that will protect the computer during an earthquake.It would like you to analyze the feasibility of the venture and suggests a break-even bid price.It provides you with the following details:
$\bullet$ Marketing analysis indicates technology companies in Silicon Valley will buy 250 tables each year for four years.
$\bullet$ The consultant who did the marketing research charged a fee of $15,000.
$\bullet$ The firm estimates that the variable cost per table is $100.For this project the firm would require extra factory space at a cost of $25,000 per year,overhead costs such as heating and lighting would amount to $4,000 per year,and wages and salaries would total $75,000 per year.
$\bullet$ The machinery required for the new product line would cost $200,000,and have a salvage value of $50,000 at the end of 4 years.The machinery belongs to CCA class 16 and has a 15 percent declining balance rate.The asset class will remain open.
$\bullet$ Additional working capital of $150,000 would be required to get the project started.
$\bullet$ The corporate tax rate is 40 percent and the required rate of return is 12 percent.
What price should Abitibi charge for each table?

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Definitions:

Cognitive Structures

Mental frameworks that help individuals organize and interpret information, fundamental to learning and understanding the world.

Beliefs and Feelings

Internal cognitive and emotional states that influence an individual's perceptions and actions.

Moral Development

Refers to the process by which individuals acquire the standards of morality and ethics, understanding the difference between right and wrong.

Lawrence Kohlberg

An American psychologist best known for his theory of stages of moral development.