Background
The SupplyWizard Company has two product lines: widgets and gadgets. Management is considering expanding their operations online through their site www.supplywizard.com. They are interested in evaluating the potential operating profit of the opportunity. Using the data below, what is the expected operating profit (revenue less cost of goods sold and operating expenses) of the opportunity over the 10 year horizon (2010 thru 2019)? Data Current population is 100M persons as of 2009 and is expected to grow 10% over the next 10 years. Growth is expected to be linear. Internet penetration was 50% as of 2009 and is expected to reach 80% in 10 years. Growth is expected to be linear. SupplyWizard.com currently has a 5% market share of Internet visitors and expects this to reach 10% in 10 years. Growth is expected to be linear. SupplyWizard.com makes money as visitors consume pageviews and buy products on the site. Visitors generate 5 pageviews/year and $0.05 in revenue/pageview (through paid advertising on the pageviews). Average conversion of users who visit the site who buy a product is 5% and expected to remain constant. Management expects to sell widgets and gadgets in a ratio of 3:1 Average selling price: Widget = $10 / Gadget = $15 Pricing is expected to remain flat due to competitive pressures. Cost of good sold are expected to be 10% of widget and gadget sales. Operating expenses are expected to be 40% of total sales (including pageviews and widget & gadget sales).