Determine the economic value to the customer of the cold

Assignment Help Accounting Basics

Reference no: EM132782867

Fridges 4 Cafes Pty Ltd is developing a new type of commercial refrigerator called the Cold Master, that it plans to sell to Café's and restaurants. Currently the market leader is a product called Cool Maid which is sold by a competitor. The managing director of Fridges 4 Cafes Pty Ltd has engaged a market research agency to help assess the appropriate selling price for the new fridge.

The agency has surveyed the market and determined the following data for the market leading fridge - the Cool Maid:

Selling Price $18,000

Installation Costs $300

Yearly maintenance cost $1,200

Expected useful life 8 years

Disposal value zero

Engineering studies have determined that the Cold Master will require maintenance costs of $900 per annum and will have a useful life of nine years with a disposal value of zero. In addition, the new product has a higher energy rating than the Cool Maid so will use less electricity. The value of this improved functionality to the customer is estimated at $600. Customers will need to incur an average installation cost for the Cold Master of $450 per unit.

REQUIRED:

Problem (a) Determine the economic value to the customer of the Cold Master by comparing against the Cool Maid (Do not consider the time value of money)

Problem (b) What price should Fridges 4 Cafes Pty Ltd charge for the new product? Explain your answer.

Reference no: EM132782867

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