Question

Suppose that Coca-Cola decides introduce a new diet soft drink in the market. The product is expected to sell well but it will likely reduce the sales of some of their other products. Analysts expect that the other diet drinks that Coke sells will lose $23.00 million in sales per year. The after-tax operating margin on sales for Coke is 24.00%. What is the yearly side effect for introducing the new product? (Express as positive number and answer in terms of MILLIONS, so 1,000,000 would be 1.00)

Answer 1

Answer:

$5.52 million

Explanation:

Data provided in the questions

Lose sales per year = $23 million

After tax operating margin on sales is 24%

By considering the above information, the yearly side effect for introducing the new product is

= Lose sales per year × After tax operating margin on sales

= $23 million × 24%

= $5.52 million

We simply multiplied the lose sale per year with the after tax operating margin on sales so that the yearly side effect could come