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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. 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.

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% and inflation is hitting an all-time high of about 7.9% as of August 2022 . Inflation is expected to stabilize at 5% for 2023 and beyond.

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 ? 20% 19.00% 6.20

Do you recommend the launch of Bounty Basic in Germany over a 5-year project horizon?

Your project analysis should include:

A. A Financial evaluation:

a. Determine the optimum promotional strategy under each of the two plans provided and include the information from your chosen strategies in your financial evaluation.

b. Calculate the accounting profit before tax for each of the 5 Years.

c. Evaluate the launch using the Home Currency approach. Clearly set out how you calculated the appropriate exchange rates and WACC used in your analysis.

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