Prepare a report to the Chief Coconut of Hula Island that discusses the following:

1. Recall that Hulas management believes that each customer generates $3.50 in short-run profit and $25 in lifetime profit. Calculate the advertising cost per conversion for Internet advertising Options 1 (Monthly Online Magazine) and 2 (Affiliated Retail Store). Calculate the total expected profit from each option (short-run and lifetime), as well as the ratio of total profit to advertising cost (short-run and lifetime). To determine the benefits of an advertising campaign, should Hula Island use the profit on the first sale or the expected lifetime profits? To choose between advertising campaigns, should Hula Island use the total expected profits or the ratio of total expected profits to advertising costs?

Table 2: Costs and Predicted Outcomes for each Advertising Option Option 1 Monthly Online Magazine Option 2 Affiliated Retail Store Option 3 Search gine Auction Costs Variable $0.00 $0.25/click S0.005/click $50 Fixed $500 Auction Outcomes 5,780 84,000 Expected Clicks Average Page views Percentage of Clicks 1,550 20 Converted 3.00% 0.14% Table 1: Hula Island Income Statement- Entire Year Ended May 2015 Unit Sales 13,926 $292,446 24,000 46,227 17,408 Shipping and Taxes $47,714 3.43 Profits Average profit/order Hula Island Income Statement By Month Oct Dec Feb Unit Sales 731 981 973 1,301 1,245 2,359 1,700 769 1,218 840 $15,351 $20,601 $20,433 27 321 $20,139 $26,145 $49,539$35,700 17,850 $16,149 $25,578 17,640 2,000 7,676 914 2,000 10,301 1,226 2,000 13,661 1,626 2,000 10,070 1,199 2,000 13,073 1,556 2,000 17,850 2,125 2,000 2,000 8,075 961 2,000 8,820 1,050 24,770 10,217 1,216 2,789 1,523 2,949 1,063 Ship/Taxes Profits The previous month's sales (May sales) wevre $17,010 $4411 10148 $8755