Question: how do I solve this problem using sensitvity analysis in excel; You have been asked to analyze the profitability of releasing a new music album

how do I solve this problem using sensitvity analysis in excel;
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 of the CD sales.
Using the information above, answer the following questions:
1. Determine how the record labels profit will vary as CD sales vary from 100,000 to 1 million copies (with 100,000 increments.
2. Determine how the record labels 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).
3. Should the record label agree with the bands royalty demands?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!