The commercial team has recommended the optimal pricing strategy for Bounty Basic to be 66% of the cost to retailer of existing Bounty High-tier.[1] The product cost (COGS) is 50% of revenue received by P&G. (table below)

The marketing expenses to deliver these sales are €150,000, incurred annually. There is an additional €80,000 in Sales and Administration Expenses (combined), incurred annually. The firm pays corporate tax in Germany at a rate of 15%, one year in arrears, and given that there is a double taxation agreement between Germany and the USA, profits will not be taxed in the USA.[2]

To launch this product P&G will purchase machinery costing €2,500,000 that can be depreciated straight-line to zero over 5 years, and will also require an upfront investment in net working capital of €100,000. All costs quoted are ex- VAT and costed at 2022 prices.

The team in Germany has advised that the local VAT rate is 19%[3] and inflation is hitting an all-time high of about 7.9% as of August 2022[4]. Inflation is expected to stabilize at 5% for 2023 and beyond.

Bounty High-Tier Pricing in other European markets:

Bounty Pricing in other EU Markets	Cost to the Retailer (ex VAT)	Retailer Mark-Up on Cost	VAT	Shelf Price (incl VAT)*
Austria	4.25	20%	10.00%	5.61
Sweden	4.68	19%	12.00%	6.24
France	4.91	20%	5.50%	6.22
Switzerland	4.50	20%	17.50%	6.35
Germany	5.21	20%	19.00%	6.20

P&G is concerned that the COGS is underestimated and would like you to perform a sensitivity analysis should the actual COGS be 60% of revenue received by P&G. find the impact on the NPV of the project.

[1] Remember that P&G sells to the retailer and not the final consumer

[2] This is for learning purposes and may not reflect the reality of true commercial landscape

[3] https://taxsummaries.pwc.com/germany/corporate/other-taxes#:~:text=Value%2Dadded%20tax%20(VAT),from%20that%20payable%20on%20outputs.

[4] https://www.destatis.de/EN/Themes/Economy/Prices/Consumer-Price-Index/_node.html