A pharmaceutical company is launching a new drug with a push and pull communicat
ID: 2739018 • Letter: A
Question
A pharmaceutical company is launching a new drug with a push and pull communications campaign aimed at end users and doctors. The company requires at least 5% marketing return on investment (ROI) over the first five years of the product's commercialization. Cumulative unit sales for the first five years are forecast to be 7,061,146 units. The unit contribution or contribution margin per unit is $74.80. Cumulative marketing costs over the five years total to 489,000,000. Will the company meet its ROI hurdle rate? Show your work.
Explanation / Answer
Cumulative marketing costs over the five years = 489,000,000.
TOTAL INVESTMENT = 489,000,000
Cumulative unit sales for the first five years are forecast to be = 7,061,146 units.
The unit contribution or contribution margin per unit = $74.80.
CONTRIBUTION MARGIN = $74.80 * 7,061,146 units
= $ 528173721
NET PROFIT = $ 528173721 - 489000000 = $39173721
ROI = NET PROFIT / TOTAL INVESTMENT * 100
= $ 39173721 / 489,000,000 * 100
= 8.01%
YES, Company meet its ROI hurdle rate
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