Question

The Merry Co. has current annual sales of​ $350,000 and a net profit margin of​ 6%. Sales are expected to increase by​ 5% annually while the profit margin is expected to remain constant. What is the projected afterminus−tax earnings for two years from​ now?

Answer 1

Answer:

$23,153

Explanation:

Given that,

Current annual sales = $350,000

Net profit margin =​ 6%

Sales are expected to increase by​ 5% annually.

Sales two years from now:

= Sales in year 0 × (1 + Growth of year 1) × (1 + Growth of year 2)

= $350,000 × (1 + 5%) × (1 + 5%)

= $350,000 × 1.05 × 1.05

= $385,875

Profit margin = 6% of sales two years from now

                     = 0.06 × $385,875

                     = $23,153