John Deere Tractors is considering the introduction of a mid-priced version of the firm's DC6900 lawn and garden tractor product line the DC6900-X. The DC6900-X would sell for $3,900 with unit variable costs of $1,800. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' products and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume would come from the higher-priced DC600-Omega tractor, which sells for $5,900 (with unit variable costs of $2,200). Another 20 percent of the DC00-X sales volume would come from the economy-priced DC6900-Alpha tractor, priced at $2,500 (with unit variable costs of $1,200). The DC6900-Omega unit volume is expected to be 400,000 units next year, and the DC6900-Alpha is expected to achieve a 600,000-unit sales level. The fixed costs of launching the DC6900-X have been forecast to be $2 million during the first year of commercialization. Should the DC6900-X model to the line of lawn and garden tractors? Why?
John Deere Tractors is considering the introduction of a mid-priced version of the firm's DC6900 lawn and garden tractor product line the DC6900-X. The DC6900-X would sell for $3,900 with unit variable costs of $1,800. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' products and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume would come from the higher-priced DC600-Omega tractor, which sells for $5,900 (with unit variable costs of $2,200). Another 20 percent of the DC00-X sales volume would come from the economy-priced DC6900-Alpha tractor, priced at $2,500 (with unit variable costs of $1,200). The DC6900-Omega unit volume is expected to be 400,000 units next year, and the DC6900-Alpha is expected to achieve a 600,000-unit sales level. The fixed costs of launching the DC6900-X have been forecast to be $2 million during the first year of commercialization. Should the DC6900-X model to the line of lawn and garden tractors? Why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:John Deere Tractors is considering the introduction of a mid-priced version of the firm's DC6900 lawn and garden
tractor product line the DC6900-X. The DC6900-X would sell for $3,900 with unit variable costs of $1,800. Projections
made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000
units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors'
products and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume
would come from the higher-priced DC600-Omega tractor, which sells for $5,900 (with unit variable costs of $2,200).
Another 20 percent of the DC00-X sales volume would come from the economy-priced DC6900-Alpha tractor, priced at
$2,500 (with unit variable costs of $1,200). The DC6900-Omega unit volume is expected to be 400,000 units next year,
and the DC6900-Alpha is expected to achieve a 600,000-unit sales level. The fixed costs of launching the DC6900-X have
been forecast to be $2 million during the first year of commercialization. Should the DC6900-X model to the line of lawn
and garden tractors? Why?
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