Question

It is June 1, 2021. Bob Morton, the Vice-President of Operations for Omni Consumer Products (OCP), is assessing a brilliant new product line: a disruptive breakthrough in the design of baby diapers. Bob expects to have the product ready for the market on Jan 1, 2022. Bob wishes to analyze the financial performance of the new product for its first full year in the market (2022) for a meeting with his CEO, Richard Jones. Here is what he knows: a) The total market size is 52 million households. b) The addressable market for the company's product in 2022 is expected to be 8% of the total market. In this case, the addressable market (aka household penetration rate) represents the percentage of households that have children under the age of 3. c) Each household in the addressable market will buy 2 packages per month (they will consume and need to refill their purchase twice per month). d) For the first year in the market, a unit market share of 10.5% is expected. e) The average selling price is $20.00 per unit in 2022. f) The variable cost of production is $13.50 per unit. g) Variable marketing and selling expenses (including commissions and broker fees) are projected at 5% of the average selling price. h) Variable packaging costs are forecasted at $1.85 per unit. i) Fixed marketing costs are $4,000,000 per year. j) Fixed manufacturing costs are $8,000,000 per year. k) Fixed G & A (general & admin) expenses are $3,500,000 per year. l) OCP has an average tax rate of 25.5%. m) The initial investment to launch the product is $50.0 million, which will be spent in 2021. Included in this budget would be to finalize product development, setup of production facilities, and the initial marketing campaign for the product launch.

          It is June 1, 2021. Bob Morton, the Vice-President of Operations for Omni Consumer Products (OCP), is assessing a brilliant new product line: a disruptive breakthrough in the design of baby diapers. Bob expects to have the product ready for the market on Jan 1, 2022. Bob wishes to analyze the financial performance of the new product for its first full year in the market (2022) for a meeting with his CEO, Richard Jones. Here is what he knows: 

a) The total market size is 52 million households. 
b) The addressable market for the company's product in 2022 is expected to be 8% of the total market. In this case, the addressable market (aka household penetration rate) represents the percentage of households that have children under the age of 3. 
c) Each household in the addressable market will buy 2 packages per month (they will consume and need to refill their purchase twice per month). 
d) For the first year in the market, a unit market share of 10.5% is expected. 
e) The average selling price is $20.00 per unit in 2022. 
f) The variable cost of production is $13.50 per unit. 
g) Variable marketing and selling expenses (including commissions and broker fees) are projected at 5% of the average selling price. 
h) Variable packaging costs are forecasted at $1.85 per unit. 
i) Fixed marketing costs are $4,000,000 per year. 
j) Fixed manufacturing costs are $8,000,000 per year. 
k) Fixed G & A (general & admin) expenses are $3,500,000 per year. 
l) OCP has an average tax rate of 25.5%. 
m) The initial investment to launch the product is $50.0 million, which will be spent in 2021. Included in this budget would be to finalize product development, setup of production facilities, and the initial marketing campaign for the product launch.

Added by Luisa K.

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