Answered: You are the manager in charge of global…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

You are the manager in charge of global operations at BankGlobal – a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new advertising campaign in the U.S. market. Your accounting department has provided the accompanying statement, which summarizes the financial impact of the advertising campaign on U.S. operations. In addition, you recently received a call from a colleague in charge of foreign operations, and she indicated that her unit would lose $8 million if the U.S. advertising campaign were launched. Your goal is to maximize BankGlobal’s value.

	Pre-Advertising Campaign	Post-Advertising Campaign
Total Revenues	$18,610,900	$31,980,200
Variable Cost
TV Airtime	5,750,350	8,610,400
Ad development labor	1,960,580	3,102,450
Total variable costs	7,710,930	11,712,850
Direct Fixed Cost
Depreciation – computer equipment	1,500,000	1,500,000
Total direct fixed cost	1,500,000	1,500,000
Indirect Fixed Cost
Managerial salaries	8,458,100	8,458,100
Office supplies	2,003,500	2,003,500
Total indirect fixed cost	$10,461,600	$10,461,600

Should you launch the new campaign? Explain.

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