Best Electronic Buys

Where everything is High-Tech

M E M O R A N D U M
To: Greg Martin
From: Profit Analysis Team
Subject: Parent Company demands Results!
Blu-Ray Player Sales Volume
Based on marginal analysis of Blu-Ray player sales we have determined that in order to
optimize your bottom line you should scale back Blu-Ray sales.
However, our analysis only looks at the profits to be gained directly from the sale of the
Blu-Ray players themselves. To fully understand the value of selling individual units of
Blu-Ray players we would have to look into the sales of peripherals by customers who
purchased Blu-Ray players from us, such as HDMI cables and Blu-Ray discs.
Advertising Campaign
Based on our analysis of the net present value of the advertising campaign, we
recommend perusing the campaign.
Though, it must be stated that our analysis only compares the value of the funds spent on
the advertising campaign to placing the funds into the bank and collecting interest on that
money. This analysis does take into account other possible uses for the funds other then
investing in (a) advertising or (b) the bank. Other possible investments could possibly
cause us to need to further look into the net present value of the advertising investment.
Blu-Ray Player Sales Volume Workout:
R(Q)=1250Q-8Q2
C(Q)=125+6Q2
MR(Q)=1250-16Q
MC(Q)=12Q
1250-16Q=12Q
1250=28Q
Q=44.6545

The marginal analysis of Blu-Ray player sales shows that in order to optimize profits
Blu-Ray player sales should be scaled back to approximately 45 units per month. Though
as stated above peripheral sales have not been taken into account in our analysis and may
affect the optimal number of Blu-Ray players to be sold. Should you have that data with
regards to peripheral sales we would be glad to preform the analysis again including these
factors.
Advertising Campaign Workout
C0=$12,000
FV1=$13,640
I=7%
NPV=$13,640/(1.07)-&12,000=$12,747-$12,000=$747
As shown above the net present value of investing the funds in the advertising campaign
is approximately $747, which indicates that this would be a wise use of funds. That said
the only other option that we compared it to was investing the funds at the bank interest
rate of 7%, if another option were to be available this would cause us to have to rethink
our recommendation. Should another option present itself we would be happy to
reevaluate.