Question
Hyperion Inc., currently sells its latest high-speed colour printer, the Hyper 500, for $333. Its cost of goods sold for the Hyper 500 is $190
Hyperion Inc., currently sells its latest high-speed colour printer, the Hyper 500, for $333. Its cost of goods sold for the Hyper 500 is $190 per unit, and this year's sales (at the current price of $333) are expected to be 21,000 units. Hyperion plans to lower the price of the Hyper 500 to $285 one year from now. a. Suppose Hyperion considers dropping the price to $285 immediately, (rather than waiting one year). By doing so it expects to increase this year's sales by 28% to 26,880 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $65 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 60% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)?
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