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Coca Cola's beverage sales have recently been declining and causing concern to the industry leader in this highly competitive market. Coca Cola, who just paid
Coca Cola's beverage sales have recently been declining and causing concern to the industry leader in this highly competitive market. Coca Cola, who just paid $1.9 billion to acquire a major stake in Monster energy drink, wants to boost Monster sales to bolster shareholders' confidence in the wisdom of this expensive transaction. Monster is currently the #2 energy drink behind Red Bull. To stimulate Monster sales Coca Cola plans to increase advertising by $2,100,000 and also use coupons for the next year. Monster typically is sold in 16 oz. cans which retail for $3.29. Coupons will give consumers $0.45 off of a single can purchase. Because Monster's target consumer is not a high user of coupons, Coca Cola estimates that only 1 in 10 single can purchases will be made with the coupon. Retailers, who have a 45% trade margin, will receive their regular margins and be reimbursed by Coca Cola for any purchases made with coupons. Coca Cola will use typical distribution networks and sell Monster to distributors who have a 13% trade margin. The distributors then sell to retailers in their region. Monster is sold in 90% of the U.S. energy drink market, which is approximately $875 million at manufacturer's prices. Incremental fixed overhead costs incurred by Coca Cola for the Monster brand are expected to be $1,950,000 per year. The only unit variable costs for Monster are $0.55 for materials and $0.30 for labor. a. At what price will Monster be sold to wholesalers? b. What is the standard contribution per unit for Monster? C. What is the break-even unit volume for the first year? d. What is the first-year break-even ($) share of market? e. Assume that Monster's market share increases to 34% after this purchase. If the market does not grow, how long will it take Coca Cola to pay off the purchase price of Monster
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