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After extensive research and development Goodireek Tifes Inc has recently developed a new tire the SuperTread and must decide whether to make the necessary investment to produce and market it

After extensive research and development, Goodireek-Tifes, Inc., has recently developed a new tire, the SuperTread, and must decide whether to make the necessary investment to produce and market it. The tire would be ideal for drivers doing a lot of wet weather and off-road driving in addition to normal usage. The research and development costs have totaled about $9 million. The SuperTread would be put on the market for a total of four years. Test marketing costing $6 million has shown there is a significant market for the tire. Goodweek must initially invest $142 million in production equipment to make the SuperTread. This equipment can be sold for $25 million at the end of four years. Goodweek intends to sell the SuperTread to two distinct markets:
1) The Original Equipment Manufacturer (OEM) Market. The OEM market consists primarily of the large automotive companies that buy tires for new cars. In the OEM market, SuperTread is expected to sell for $185 per tire. The variable cost to produce each tire is $166. 2) The Replacement Market. The replacement market consists of all tires purchased after the automobile has left the factory. This market allows for higher margins and Goodweek expects to sell the SuperTread for $210 per tire in this market. Variable costs are the same as the OEM market.

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Apr 28 2020 View more View Less

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