Aman Ltd. is producing a single Product-X and presently commanding a market share of 15%. The following cost details are provided: ₹ ₹ Sales price 100 Less: Material 40 Labour 20 Overheads 10 70 Contribution 30 Less: Fix

Calculation for increase in production % increase in market share Total production Increase in production 25% 15000 * 25/15 = 25,000 units 25,000 - 15,000 = 10,000 units 20% 15000 * 20/15 = 20,000 units 20,000 - 15,000 = 5,000 units Calculation of incremental outflow Year Promotional expenses Fixed cost Total outflow 0 1,00,000 - 1,00,000 1 75,000 30,000 1,05,000 2 50,000 30,000 80,000 3 - 30,000 30,000 (i) Incremental NPV at market share of 25% Year Net outflow Contribution Net cash Flow PVF @ 15% PV 0 (1,00,000) - (1,00,000) 1.0000 (1,00,000) 1 (1,05,000) 3,00,000 1,95,000 0.8696 1,69,572 2 (80,000) 3,00,000 2,20,000 0.7561 1,66,342 3 (30,000) 3,00,000 2,70,000 0.6575 1,77,525 NPV 4,13,439 (ii) Incremental NPV at market share of 20% Year Net outflow Contribution Net cash Flow PVF @ 15% PV 0 (1,00,000) - (1,00,000) 1.0000 (1,00,000) 1 (1,05,000) 1,50,000 45,000 0.8696 39,132 2 (80,000) 1,50,000 70,000 0.7561 52,927 3 (30,000) 1,50,000 1,20,000 0.6575 78,900 NPV 70,959 Impact on Profitability: As NPV under both the options is positive after taking into account fixed costs as well as promotional expenses. Therefore, profitability position of firm will improve if market share is increased in both the cases.