You are now the Chief Marketing Officer (CMO) of Louis Vuitton Handbags.

WOW! See how taking this class has gotten you such a GREAT JOB!

You are in-charge of launching 3 BRAND-NEW handbags for the upcoming season.

The bags are:

1.New Wave Chain Bag: $2,880

Cost of Goods Sold(CoGS): 45%

Initial Production Set-Up Cost: $0 (Uses same production set-up as previous year's model)

3-Year Ad Schedule: 1) $5,000,000, 2) 25% less than prior year, 3) 25% less than prior year

Expected 3-Year Sales(in units): 1) 60,000, 2) 0.01 units for each $1 in advertising spent in the prior year, 3) 0.01 units for each $1 in advertising spent in the prior year.

2.Bleeker Box – $3,150

Cost of Goods Sold(CoGS): 55%

Initial Production Set-Up Cost: $10,000,000

3-Year Ad Schedule: 1) $10,000,000, 2) 25% less than prior year, 3) 25% less than prior year

Expected 3-Year Sales(in units): 1) 100,000, 2) 0.0075 units for each $1 in advertising spent in the prior year, 3) 0.0025 units for each $1 in advertising spent in the prior year.

3.Lock Me Ever Bag - $3,200

Cost of Goods Sold(CoGS): 50%

Initial Production Set-Up Cost: $2,500,000

3-Year Ad Schedule: 1) $7,500,000, 2) 25% less than prior year, 3) 25% less than prior year

Expected 3-Year Sales(in units): 1) 75,000, 2) 0.005 units for each $1 in advertising spent in the prior year, 3) 0.005 units for each $1 in advertising spent in the prior year.

QUESTION:

Rank the three handbags based on ROI, 1^st, 2^ndand 3^rd.

Use a 3-year time frame and a 12% cost of capital for the NPV.

BONUS QUESTION:

Assuming "Initial Production Set-Up Cost" and "Advertising Expense" are Fixed Costs, calculate the First-Year Break-Even for each handbag in UNITS and $ DOLLARS.

Give one observation regarding the relationship of the Break-Even to the ROI (NPV).