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# Calculating Incremental Revenue and Incremental COGS

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Bob, the new Chief Marketing Officer at the XYZ company has proposed an expansion of the companies marketing efforts. He claims that an investment of \$1,000,000 in marketing research this year, and following this with an increase in marketing expenditures of \$250,000 a year will increase sales by 10% each year over the sales forecasted without the marketing program. The sales forecasts and costs are shown below. The market research study is not depreciable but should be considered as an investment in year 0.

Year 0 1 2 3 4
Revenue without Marketing program \$18,000,000 \$20,000,000 \$22,000,000 \$24,000,000 \$26,000,000
Proposal increase in revenue 10%
Revenue with Marketing program \$18,000,000 \$22,000,000 \$24,200,000 \$26,400,000 \$28,600,000
COGS percentage of revenues 48%
S.G.A. (no change)
Market Research \$1,000,000
Annual Marketing Increase \$250,000
MARR 16%
Tax 14%
Working Capital (all kinds) 45% of revenue

##### Solution Summary

The expert calculates the incremental revenues and incremental COGS.

##### Solution Preview

Solution

Q1:
Determine the how the present worth would be affected by prices of \$47, \$49, \$51 and \$53 with a quantity sold of 55,000.
\$47 \$49 \$51
(\$61,716) (\$421,235) (\$181,556) \$58,123
Use the Data Table function in Excel (MSExcel 2010). ...

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