5 Find EEE. ALI AaBbCcDc AaBbcc AaBb C AaBbc Repla ==== 24 1 Normal 11 No Spac... Heading 1 Heading 2 Select Paragraph Styles Editing 3. Absolut is considering launching a new brand of vodka called the "Silk", priced at $27 per bottle (12 bottles per case). The unit cost to produce each bottle is $5, and they expect they would be able to sell 55,000 cases in the first year of launching it. Marketing costs for the first year would be $30M and R&D costs (one-time) would be $300,000. They'expect that 40% of that volume will be from incremental sales (market growth and from competitors). Absolut now sells three brands of vodka: Eris which sells for $7 with a variable cost of $2.75. Absolut which sells for $19 with a variable cost of $4, and Level which sells for $29 with a variable cost of $5.75. The company predicts that it will sell about 280,000 cases of Fris 180,000 cases of Absolut, and 95.000 cases of Level. If they launch the Silk, 35% of the volume will come from the Absolut and the remaining 25% will come from Level. (Hint: work with cases for volume multiply prices and variable costs by 12). Show calculations to answer the following: a. Based on this information, would you suggest that Absolut proceed with the launch of Silk? [10] b. Suppose in the second year, sales volumes increase by 18% for Eris, 15% for the Absolut and by 25% for Level without Silk. However, if they launch the Silk, its volume would increase by 75,000 cases, given a marketing expenditure of $20M Consider the design cost sunk after the first year. Would your decision change considering both years assuming the same cannibalization rates? [10] c Suppose the volumes are expected to increase in the volumes described in part b. However, this volume was achieved by offering S3 coupons on the Silk. Assume that 40% of the volume will be at full price of the discounted volume 10% will be cannibalized from Fri, 15% will be from Absolut, and s from Level. Of the non- discounted batch 20% will be cannibalized sales from Level Assume the other marketing costs are reduced to S1OM What would your decision be considering both years and should they run the coupon? (Hint Split up the Silk volumes). [10] O i BH 1996 a ** 40F ()