Reference no: EM132623623

You have been asked to analyze the profitability of releasing a new music album by a hair metal band from 1980s. You have been able to collect the following information:

The band is expecting a one-time royalty payment of $12 million.

The fixed cost of producing a CD version of the book is $1.5 million.

The variable cost of producing each CD is $2.

Each CD will be sold for $11.99.

The record label expects to sell 1 million CDs.

The fixed cost of producing an LP is $0.5 million.

The variable cost of producing each LP is $4.

Each LP is sold for $21.99.

LP sales are expected to be ¼ of the CD sales.

Using the information above, answer the following questions:

Determine how the record label's profit will vary as CD sales vary from 100,000 to 1 million copies (with 100,000 increments.

Determine how the record label's profit will change as CD sales vary from 100,000 to 1 million copies and the ratio of LP to CD sales varies from .1 to .35 (with 0.05 increments).

Should the record label agree with the band's royalty demands?