Question

Hyperion Inc., currently sells its latest high-speed colour printer, the Hyper 500, for $359. Its cost of goods sold for the Hyper 500 is $205 per unit, and this year's sales (at the current price of $359) are expected to be 21,000 units. Hyperion plans to lower the price of the Hyper 500 to $308 one year from now. a. Suppose Hyperion considers dropping the price to $308 immediately, (rather than waiting one year). By doing so it expects to increase this year's sales by 23% to 25,830 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $84 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)? a. Suppose Hyperion considers dropping the price to $308 immediately, (rather than waiting one year). By doing so it expects to increase this year's sales by 23% to 25,830 units. What would be the incremental impact on this year's EBIT of such a price drop? The change in EBIT will be $ (Round to the nearest dollar.) b. Suppose that for each printer sold, Hyperion expects additional sales of $84 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)? The change in EBIT from ink cartridge sales will be $ . (Round to the nearest dollar.) The incremental change in EBIT for the first year is $. (Round to the nearest dollar.) The incremental change in EBIT for the second year is $ (Round to the nearest dollar.) The incremental change in EBIT for the third year is $ . (Round to the nearest dollar.)

Answer 1

Solution ) (a) Selling Price of Pointer (without price Drop) = $359 per unit No. of units to be sold I without Price Drop) = $1,000 Cost of Good sold = $205 per unit EBIT (without Porce Doop) =) No. of units (Selling Price - Cows] 21,000{ $359- $205] = 21,000 x $154 = $ 3,234,000 Selling Price of Pointer (After Price Drop) = $308 per unit No. of units to be sold (after Price Drop ) = 25,830 units lost of Goods sold- $205 per unit EBIT (after Price Drop) No. of units (selling Price Cost of Good sold] = 25,830 | $308 – $ 205] = 25,830 [ $103] = $2,660,490

The change in EBIT will be a E B17 (with Poice Drop)- EB17. (without Paice Doop) $ 29669,490 - $ 3, 234,000 -- $ 573,510 (6) Selling Porice of Ink Cartridge = $84 Profit Margin = 70% of 0.70 Change in EBIT from Ink catridge sales is calculated by subtracting profit on sale of 21,000 ink catridge from profit on sale of 25,830 ink catridge change in EBIT from Ink Cartridge = ► 25,83.0 x $84 % 0,70 – 21,000 x $84 X0,70 = $1,518,804 - $ 1,234,800 $ 284,004 Incremental change in EBIT for next 3 = = = = = = years = Year 15

coen rom I nevement al change in EBIT - Incremental change in EBIT from sale of printers ... Incremental change in EBIT from sale of ink cartridge 3 – $573,510 + $ 284,004 = - $289,506 year 2 rem ink Incremental change in EBIT is $284,004 that is the change in EBIT from sale of cartridge. Year 3 7 Incremental change in EBIT the change in EBIT from is $284,004 that is sale of ink cartridge. nom ее