Managerial Economics

You are considering setting up a software development business. To set up the enterprise you will need to buy equipment costing $100,000. This equipment will be depreciated straight line over 5 years to a zero salvage value. Its market value at the end of the 5 years will be zero. You will need to rent space at $5,000 per year for the five years of the project. You will also need to hire 5 software engineers at $50,000 each, per year to work in this project. Marketing and selling costs will be $100,000 per year during the project. Materials costs are $20 per unit. You expect to sell 6,000 units of the product each year for the five years. If your tax rate is 40%, and you require a return of 12%, what is the minimum price you should charge per unit of the product?

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