#6. (10pts) You forecaste effects of the projects that may affect the profits of

Question

#6. (10pts) You forecaste effects of the projects that may affect the profits of your work d the incremental earnings for a project. Now you considered the indirect other business activities of the same firm (Show Table before the project externalities Year 4 Sales 26,000 26,000 26,000 26,0 Cost of Goods (9,500)(9,500) Sold (9,500) (9,500) Table after the project externalities: 15% of sales come from customers who would have purchased an old product if the new products were not available. (100,000 units new product sales, $100 per unit- old product price per unit, and $60 per unit- old product unit cost) Year 1 Year 2 Year 3 Year 4 Sales (Spts) Cost of Goods Sold (Spts)

Explanation / Answer

Impact of cannibalization on sales

Reduction in sales = 15%*100000*$100 = $1500,000

Hence amount of sales after externalities = 26000-1500 = $24,500

Impact of cannibalization on COGS

Reduction in cost = 15%*100000*$60 = $900,000

Amount of COGS after externalities = 9500- 900 = $8600

Hence the new table after externalities will be

Amount in $ thousands

Year 1

2

3

4

Sales

24500

24500

24500

24500

COGS

8600

8600

8600

8600

Year 1

2

3

4

Sales

24500

24500

24500

24500

COGS

8600

8600

8600

8600

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