Marketing 5150

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5.

The current total contribution is $355,000.

Contribution = Price – VC

LX1 C ($) = 175 – 100 = 75

LX2 C ($) = 250 – 125 = 125

LX3 C ($) = 300 – 140 = 160

Total Contribution = (LX1 + LX2 + LX3) (Demand x Contribution)

= 2000 x 75 + 1000 x 125 + 500 x 160 = $355,000

The profit potential for this project is $-380 due to the costs from Model LX4, making this opportunity unfavorable.

Adjusted Demand = Prior Demand – Price x non-manufactured models

LX1 AD = 2000 – 175 x 90% = 1982

LX2 AD = 1000 – 250 x 70% = 946

LX3 AD = 500 – 300 x 40% = 392

LX4 D = 300

Total Contribution = (LX1 + LX2 + LX3 + LX4) (Demand x Contribution) - FC

= 1982 x 75 + 946 x 125 + 392 x 160 + 300 x 150 – 20,000 = $354,620

Total profitability ($)= 355,000 - 354,620 – 20,000 = $-380

6. The profit generated from DC6900-Omega and

DC6900-Alpha amounts to $685,000,000.

Unit Contribution = Price – VC

DC6900-X UC = 3900 – 1800 = 2100

DC6900-Omega UC = 5900 – 2200 = 1200

DC6900-Alpha UC = 2500 – 1200 =1300

DC6900-Omega S = 500,000 x 30% = 150,000

DC6900-Alpha S = 500,000 x 20% = 100,000

Profit ($) = UC x Sales (models) = 3700 x 150,000 + 1300 x 100,000 = $685,000,000

Mr Leonard should add the DC6900-X Model to the line of personal computers, as it generates additional profit of $363,000,000 regardless of the other products.

With DC6900-X, + $2,000,000 in FC, 500,000 sales

DC6900-X TC = 500,000 x 2100 = $1,050,000,000

Net Profit ($) = 555,000,000 + 130,000,000 + 1,050,000,000 – 2,000,000 = $1,733,000,000

DC6900-X exclusive profit : 1,050,000,000 - 555,000,000 + 130,000,000 = $363,000,000

7. a. The discounted value of the cash inflows is $16.92 million, which is less than the present value of $17.5 million, making this investment unfavorable.

20% Discounted value ($) = 6.1 / 1.2 + 7.4 / 1.22 + 7/ 1.22 + 5.5 / 1.22

= $16.92 million

b. The discounted value of the cash inflows is $16.92 million, which is greater than the present value of $17.5 million, making this investment favorable.

15% Discounted value ($) = 6.1 / 1.5 + 7.4 / 1.152 + 7/ 1.153 + 5.5 / 1.154

= $18.64 million

8. a.

The CLV is %85.36 per month.

Customer Life time value (CLV) ($) =

Cash margin per customer (1 / (1 + interest rate – retention rate))

= (19.95 - .5 - .5) (1 / (1.01 – .788)) = $85.36

The customer retention rate should be increased to 79%

Constant CLV with an additional $.2 per month and variable retention rate:

$85.36 = ($) (19.95 - .5 - .5 -.20) (1 / (1.01 – rr))

$4.55 = 1 / (1.01 – rr)

rr = .79 or 79%

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9. a.

Pro Forma Income Statement for

Home Office System Group

Calculations

Expenses

Revenue

Sales

25,000,000

Cost of Goods Sold

7,500,000 x .4

(3,000,000)

Gross Margin

22,000,000

Marketing Expenses

Selling Expenses

25,000,000 x .15

3,750,000

Advertising expenses

(300,000 + 100,000 + (25,000,000 x .05))

1,650,000

Feright of Delivery

25,000,000 x .08

2,000,000

(7,400,000)

General Administrative expenses

Administrative Salaries

250,000

Depreciation and Maintenance

600,000

Other Administrative Expenses

(300,000 + (25,000,000 x .5))

12,800,000

(13,650,000)

Net Profit

950,000

b.

Pro Forma Income Statement for

Home Office System Group

With an adjusted

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