# Project #65583 - Business Finance Math Word problems

Pop quiz

1. 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:

1.      Spend \$800,000 in advertising. The result is expected to increase the company’s sales by 50%.

Reduce the price by 20%. The price-demand elasticity is 2.0. You must show all calculations to receive credit.

5. 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? You must show all calculations to receive credit.

6. 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.) You must show all calculations to receive credit.

 Subject Business Due By (Pacific Time) 04/09/2015 12:00 am
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