All commercial organizations exist for the purpose of making money, and opinions to launch a product have to be made on the possibility of the product being profitable or not. There are many methods of analyzing the problem. The simplest method based on the facts given in the case is to find out the expected gains made on each tire, and then finding out the number of tires that the company must sell to make a profit. Then one will have to view the possibility of the number being sold or not.

             Let us first look at the costs. Of them, research and development costs have been given as $10 million. This is a developmental cost and has to be viewed as a sunk cost. This means that the decision to incur research and development is a corporate decision and cannot be linked to any product. Another cost has been incurred on marketing, and that is of $5 million. This has been incurred by the brand. The other cost is of $120 million for production equipment. This is directly linked to the brand. Thus the first objective will be to recover $120 million directly incurred on the brand and the second objective or goal in relation to this will be to recover $35 million which are incurred in total terms with regard to the brand. It would be only after that the profits would tend to arrive. All of this needs to be done within a duration of 4 years which is considered to be the expected life time period of the brand. In order to recover this, one needs to next understand the contribution which is expected from each of the tires. .

             The tire will be sold in the Original Equipment Manufacturers --OEM market for $36 a tire and the direct cost for production including materials etc is $18. Thus the overall contribution per tire will be $18. From this a 15.9 percent discount will have to be given for the company to evaluate new product decisions. There will be an expenditure of $25 million on marketing and general administration.