Should lexmark launch this new product

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Reference no: EM132205825

Lexmark currently makes four different models of inkjet printers (Model 1, Model 2, Model 3, Model 4). Model 1 sells for $100 with a variable costs of $40 and projected demand of 3,500 units. Model 2 sells for $175 each with variable costs of $95 and demand of 2,200 units. Model 3 has variable costs of $115 and sells for $250/unit with projected sales of 1,000 units. Finally, Model 4 sells for $300 with variable costs of $150 and a demand of 600 units. Management is considering adding a high-end inkjet printer (Model 5) to its current product line. The selling price of the product is proposed to be $375 with variable costs of $185 per unit. The demand for the new product is expected to be 400 units and 50% of this demand will come from cannibalized sales from the other units (15% from Model 1, 10% from Model 2, 30% from Model 3, and 45% from Model 4). By how much does the profit change if Model 5 is launched? The fixed costs associated with launching Model 5 are expected to be $45,000. Should Lexmark launch this new product?

Reference no: EM132205825

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