Question
Glucose Scan Incorporated (GSI) currently sells its latest glucose monitor, the Glucoscan 3,000, to diabetic patients for $129. The cost of goods sold for each
Glucose Scan Incorporated (GSI) currently sells its latest glucose monitor, the Glucoscan 3,000, to diabetic patients for $129. The cost of goods sold for each Glucoscan unit is $50, and GSI expects to sell 100,000 units over the next year. Suppose that if GSI drops the price on the Glucoscan 3,000 immediately to $99 per unit, it can increase sales over the next year by 30% to 130,000 units. Also suppose that for each Glucoscan monitor sold, GSI expects additional sales of $100 per year on glucose testing strips, and these strips have a gross profit margin of 75%. Considering the increase in the sale of testing strips, the incremental impact of this price drop on the firm's EBIT is closest to:
A) a decline of 1.5 million
B) a decline of 0.7 million
C) an increase of 0.7 million
D) an increase of 1.5 million
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