Jill Hawkins, Chief Marketing Officer for Millennium Sporting Equipment (MSE), Inc., must decide whether to introduce a mid-priced version of the firm's Voyager line of high performance recreational bicycles next year. The new model (V-330) has a unit variable cost of $180, and will be sold to retailers at a price of $390. Projections made by the product development team indicate that the V-330 would achieve a sales volume of 50,000 units next year, its first year of commercialization. Sixty percent of the V-330s first year's sales volume is expected to come from competitors' products and market growth, while the remaining 40 percent will come from two models currently sold by MSE. Sixty percent of this cannibalized volume will come from the higher-priced V-660 model, which has unit variable costs of $220 and is sold to retailers for $590. The remaining 40 percent will come from the economy-priced V-220 (priced at $250 to retailers with unit variable cost of $120). If V-330 is not introduced, sales of the existing models next year are expected to be 40,000 units for V-660 and 60,000 units for V-220. The fixed costs of launching V-330 have been forecast to be $3 million

. a) What is the cannibalization rate?

b) How many units each of V-220 and V-660 will be cannibalized? (2 points)

c) How many incremental units of V-330 will be sold? (1 point)

d) Should Ms. Hawkins add the V-330 model to the product line? Why? (6 points)