Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134101446
Author: Berk, Jonathan; DeMarzo, Peter
Publisher: PEARSON
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Textbook Question
Chapter 8, Problem 1P
Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.
- a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
- b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?
a.
Expert Solution
Summary Introduction
To determine: The level of incremental sales is associated with introducing new pizza.
Introduction:
Answer to Problem 1P
The level of incremental sales is associated with introducing a new pizza is $12,000,000.
Explanation of Solution
Given information:
Sales of the new pizza: $20,000,000.
Percentage of customer switch: 40.00%.
Formula used to calculate incremental sales:
Calculation of the incremental sales:
Therefore, the incremental sale is $12,000,000.
b.
Expert Solution
Summary Introduction
To determine: The level of incremental sales is associated with introducing a new pizza in the given case.
Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.
Answer to Problem 1P
The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.
Explanation of Solution
Formula used to calculate incremental sales:
Calculation of the incremental sales:
Therefore, the incremental sale is $16,000,000.
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Students have asked these similar questions
Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.
Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
Suppose that 50% of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?
Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $17million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 31%will come from customers who switch to the new, healthier pizza instead of buying the original version.
a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 57%of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?
**round to two decimal places**
Chan’s Spring Roll (CSR), a seller of frozen spring roll, is considering introducing a healthier version of its product that will be low in sugar and gluten-free. The firm expects that sales of the new spring roll will be $20 million per year. While many of these sales will be to new customers, CSR estimates that 50% will come from customers who switch to the new, healthier spring roll instead of buying the original version. Suppose that 25% of the customers who would switch from CSR’s original spring roll to its healthier version will switch to another brand if CSR does not introduce a healthier spring roll. What level of incremental sales is associated with introducing the new spring roll in this case?
$15 million
$10 million
$17.5 million
$12.5 million
Chapter 8 Solutions
Corporate Finance, Student Value Edition (4th Edition)
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Table 8.1 Spreadsheet HomeNets Incremental...Ch. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - One year ago, your company purchased a machine...Ch. 8 - Prob. 15PCh. 8 - Markov Manufacturing recently spent 15 million to...Ch. 8 - Prob. 17PCh. 8 - Arnold Inc. is considering a proposal to...Ch. 8 - Bay Properties is considering starting a...Ch. 8 - Prob. 21PCh. 8 - Prob. 22P
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