Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?

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Answer 1

Textbook Question

Chapter 8, Problem 1P

Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

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Answer 2

Textbook Question

Chapter 8, Problem 1P

Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

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Answer 3

Textbook Question

Chapter 8, Problem 1P

Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

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Answer 4

Textbook Question

Chapter 8, Problem 1P

Pisa Pizza, a seller of frozen pizza is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case?

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

Answer 8

a.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

To determine: The level of incremental sales is associated with introducing new pizza.

Introduction:

Answer 13

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza is $12,000,000.

Answer 14

Explanation of Solution

Given information:

Sales of the new pizza: $20,000,000.

Percentage of customer switch: 40.00%.

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza−Lost sales of original= $20,000,000−(40.00%× $20,000,000)=$20,000,000−$8,000,000=$12,000,000

Therefore, the incremental sale is $12,000,000.

Answer 15

b.

Expert Solution

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Summary Introduction

To determine: The level of incremental sales is associated with introducing a new pizza in the given case.

Given case: Suppose that 50% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza.

Answer 20

Answer to Problem 1P

The level of incremental sales is associated with introducing a new pizza in the given case is $16,000,000.

Answer 21

Explanation of Solution

Formula used to calculate incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)

Calculation of the incremental sales:

Incremental sales = Sales of new pizza –Lost sales of original=Sales of new pizza –(Percentage of customer switch×Percentage of customer switch another brand× Sales of new pizza)=$20,000,000−(50.00%×40.00%×$20,000,000)=$20,000,000− $ 4,000,000.00=$16,000,000

Therefore, the incremental sale is $16,000,000.

Answer 22

Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CC Ch. 8.1 - Prob. 3CC Ch. 8.2 - Prob. 1CC Ch. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CC Ch. 8.3 - Prob. 2CC Ch. 8.4 - Prob. 1CC Ch. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC

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