# This first question asks you to demonstrate that you can build and analyze a basic spreadsheet model

## Question:

This first question asks you to demonstrate that you can build and analyze a basic spreadsheet model

Badge Press is considering publishing paperback text cad sheet applications in the industry. The fixed cost of manuscript preparation, book design, and production setup is estimated to be $185,000. Variable production and material costs are estimated to be $15 per book. Demand over the life of the book is predicted to be 18,000 copies. Badger Press is thinking about selling the text to retailers at a price of $29 each. Assume Badger Press produces the same number of

books that they sell to retailers. Badger Press evaluates the financial attractiveness of all of its projects using a "return on investment" (ROI) metric. In the case of its new text, "investment" would include all costs (both fixed and variable), while "return" would measure total revenue minus total cost for the book. ROI is then (return)/(investment).

Build a base spreadsheet model that outputs the ROI. Then answer each part below on its own sheet, where the answer is both calculated in the sheet and also explicitly written in a text box.

a. What is the forecasted ROI under the above assumptions?

b. If Badger Press requires an ROI of at least 10%, demand needs to be at least

units.

For this part of the problem, make the additional assumption that Badger Press' market researchers estimated the following linear demand function:

Demand t = - 300Price + 21000

Under this estimated relationship, what is the optimal price for Badger Press to set in

order to maximize ROI?