The method to calculate is reversing the process of compounding Suppose one was

The method to calculate is reversing the process of

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The method to calculate is reversing the process of compounding. Suppose one was to invest Rs. 100 at a compound interest of 12 percent then the amount will earn Rs. 12 (100 X .12 = 12) interest in the first year, which when added to the initial Rs. 100 will make the revised principal amount Rs. 112 which will now earn an interest of Rs. 13.44 (112 X .12 = 13.44), revising the new principal amount to Rs. 125.44, and so on year after year. When discounting the process is reversed. So if one was to receive Rs. 125.44 after a period of two years and an expected rate of return is reckoned at 12 percent per annum, then the amount of Rs. 125.44 would be divided by 112 and multiplied by 100, twice over to arrive at the net present value of Rs. 125.44. {(125.44 ÷ 112 X100) ÷ 112 X 100} = 112 ÷ 112 X100 = 100 Applying the above formula to the cash flow figures given above we can find the net present value as under: Table no: 5.9 Thus we observe that the initial business which was showing a profit possibility of Rs. 50 crores on a sale of Rs. 200 crores ie. 25 percent, now after calculating the present values of future earnings and spendings, is Time Outflow Discounted value Inflow Discounted value current 20 20 10 10 after 1 year 25 + 50 = 75 67 after 2 years 25 20 40 32 after 3 years 30 21 50 36 after 4 years 50 32 after 5 years 50 28 Total 128 138 94
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PRICING showing a profit possibility of Rs. 10 crores on a sale of Rs. 138 crores ie. only 7 percent. 5.6 SUMMARY Price not only directly generates revenues that allow organizations to create and retain customers at profit but can also be used as a communicator/as a bargaining tool/and also as a competitive weapon. Price is the value that is placed on something. It can mean different things to different people a buyer or a seller may view differently: 1. Customer's perspective. 2. Seller's perspective. 3. Pricing contexts. Consumer markets. Retail and wholesale markets. Service markets. Non-profit markets. B2B markets. Main Areas of External Influences on Pricing Decisions Customers and consumers/demand and price elasticity. Competitors. Channels of distribution. Legal and regulatory requirements. Main Internal Factors Influencing Pricing Decisions 1. Organizational objectives. 2. Marketing objectives. 3. Costs. Market Based Pricing Marketing considerations that can influence our pricing decisions: 1. Going rate pricing for 'me-too' products. 2. Geographic pricing. 95
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PRICING 3. Sealed bid pricing. 4. Skimming the cream, pricing. 5. Loss leader pricing. 6. Bait pricing. 7. Keystone pricing. 8. Penetration pricing. 9. Snob-value pricing. 10.Cartels. Cost Based Pricing 1. Full cost pricing vis-a-vis based on marginal cost. 2. Conversion cost based pricing. 3. Joint product pricing. 4. Return on investment based pricing. 5. Pricing for Exports Markets. 5.7 SELF ASSESSMENT QUESTIONS 1. What is the role of pricing in the entire marketing mix?
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