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##### Your company has a market share of 25%. The total market size is $100 million.

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**Question**

Your company has a market share of 25%. The total market size is $100 million. Your contribution margin (the ratio of the contribution per unit over the price per unit) is 20%. Your variable cost is $16 per unit.;You are thinking of hiring 10 more salespeople. The annual cost per salesperson (including salary and benefits) is $120,000. In addition, each salesperson receives as a bonus 10% of the sales he or she generates. How much should your market share increase to make this a profitable action? (Hint: To solve the problem you need to calculate the price per unit and then calculate the new contribution per unit that will reflect the added cost of the 10% bonus given to the salespeople.) Show all calculations!;Question 2 (25 points);Creative Solutions, Inc. has a successful brand with the name Top Goal. The market size in which Top Goal competes is $2 billion, and Top Goal has generated sales of $150 million. It has a contribution margin of 30%.;Creative Solutions is thinking of introducing a new brand under the name of Peak Goal. Peak Goal will compete in the same market as Top Goal. The budget to launch this brand is expected to be $20 million.;If it is launched, Peak Goal will capture 10% of the market. It has a contribution margin of 40%. Half of the sales of Peak Goal will be cannibalized from the sales of Top Goal.;An alternative strategy for Creative Solutions is to cancel the introduction of Peak Goal and instead to spend the $20 million to promote Top Goal. This action is expected to double the sales for Top Goal. Both brands (Top Goal and Peak Goal) would sell at the same price.;Where should the company spend the $20 million and why? Show all calculations!;Question 3 (25 points);Forsman, Inc. has sales of $10,000,000. The contribution margin is 40% and the fixed costs are $1,000,000. The price per unit is $10. The company is considering two different strategies for increasing their profits;(a) Spend $800,000 in advertising. The result is expected to increase the company?s sales by 50%.;(b) Reduce the price by 20%. The price-demand elasticity is 2.0.;Which of the two strategies will generate the highest profits? Show all calculations!;(Continued);Question 4 (25 points);Company XZC sells its Lenex Brand to four different segments?A, B, C, and D. The variable cost for Lenex is $15. The size of each segment is 1000 people. The reservation prices for the segments are;A $50;B $40;C $30;D $20;4.1 Assuming the XZC cannot use price discrimination, at what price should it sell Lenex to maximize its profits? How much would the profits be?;4.2 If Lenex could use price discrimination, how much would the profits rise? What would be the practical difficulty in implementing it?;4.3 Assume that the government wants everyone to be able to afford Lenex. It offers XZC a subsidy of $20,000 if XZC sells Lenex to all 4000 potential customers. Should XZC accept this offer? (Hint: XZC is trying to maximize its profits and in this case cannot use price discrimination.);4.4 Assume that the government wants everyone to be able to afford Lenex. It offers XZC a subsidy of $7 per unit sold if XZC sells Lenex to all 4000 potential customers. Should XZC accept this offer? (Hint: XZC is trying to maximize its profits and in this case cannot use price discrimination.);Remember, you must show all calculations to receive credit!

Paper#32522 | Written in 18-Jul-2015

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