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?

---

Definitions:

Case Studies

Research method involving an up-close, in-depth, and detailed examination of a particular case within its real-world context.

Simplified Views

The process or practice of reducing complexity by overlooking details and nuances to understand a concept or situation more easily.

Real-World Phenomena

Observable events or situations that occur in the natural or societal environment, outside of controlled experimental settings.

Models

Are simplified views of reality that attempt to explain real-world phenomena.