# New Price

Gravestone Inc.
New answer on Aug 13, 2019
2.2 k Views

New Price = \$2,300/(1-0,038) = \$2390.85

Where do we get this number from and what does it signify? (Isn't the selling price \$5,200)

Thank you

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Here, the assumption is that prices will fall as the companies want to gain market share by cost competition.

Based on this assumption, the answer assumes that gross margin of 3.8% stays the same (which is a significant assumption).

With a gross margin of 3.8%, this means that 96.2% of the price goes to cost. Costs, as calculated, are now \$2300. Therefore, this leads us to the conculsion that the new price will be \$2390.85. To calculate this, \$2,300 / 96.2% (which is the equation shown in your question).

Of course, the earlier assumptions on gross margin staying the same are worth questioning.

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