Question

Hyperion currently sells its latest high-speed color print, the Hyper 500, for $352. Its cost of goods of goods sold is ffor HYper 500 is $201 per unit and this years' sales(at current price of $352) are expected to be 24000 units. Hyperion plans to lower the price of HYper 500 to $302 one year from now. a Suppose Hyprion considers dropping the price to $302 immediately. By doing so it expects to increase this years sales by 30% to 31200 units. What would be the incremental impact on this year's EBIT of such a price drop?

b.Suppose that for each printer sold, Hyprion expects additional sales of $78 per year on ink cartridges for three- year life of the printer and Hyprion has a gross profit margin of 67% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately?

a. Suppose Hyperion considers dropping the price to $302 immediately ( rather than wait one year). By doing so it expects to increase this year's sales by 30% to 31200 units. What would be the incremental impact on this year's EBIT of such a price drop?

e

Answer 1

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Answer:

a)

Total contribution for sales = 24,000 =24000*(352-201) = 3624000

Less contribution if sales are 31200 =31200*(302-201) = 3151200

Decrease in contribution = 472800

b)

contribution if sales are 31200 =31200*(302-201) = 3151200

Add: Contribution from sale of ink catridges = 31200*78*0.67 = 1630512

Less contribution is sales are 24000 units =24000*(352-201) = 3624000

Increase in EBIT = 1157712