Question

Globex Corp. is considering opening a new division to make iToys that it expects to sell at a price of $14,950 each in the first year of the project. The company expects the cost of producing each iToy to be $5,750 in the first year; however, it expects the selling price and cost per iToy to increase by 1% each year.

Based on this information, calculate selling price in year 4.

Answer 1

Answer:

Selling price in 4th year = $15,403

Explanation:

Given:

sell price in year 1st = $14,950

Growth rate (r) = 1% each year

Number of growth year (n) = 3

Selling price in year 4 = ?

Computation of selling price in 4th year:

$sell \ price\ in\ year\ 4th = sell \ price\ in\ year\ 1st(1+r)^n \\\\sell \ price\ in\ year\ 4th = 14,950(1+0.01)^3\\\\sell \ price\ in\ year\ 4th = 14,950(1.01)^3\\\\sell \ price\ in\ year\ 4th = 14,950(1.030301)\\\\sell \ price\ in\ year\ 4th = 15,403$

Selling price in 4th year = $15,403