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# Estimating Sales and Profit after tax

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The company is "Ties for U" and my boss wants to estimate profits for next year(2008) and then determine the percentage growth from 2007 to 2008.

Some assumptions:
- The marketing folk expect the total market for ties in 2008 to be 10 million ties.
- The expect "Ties for U" to capture 20% of the market next year.(how many ties will "Ties for U" sell?)
- The average selling price for "Ties for U" is \$300.(now you can calculate the sales)
- Total expenses(cost of goods, marketing etc) estimated to be 60% of sales.
- Tax rate on profits is 50%

Questions:

What is your estimate for 2008 sales(\$)?
What is your estimate of 2008 profits after tax?
What is the percentage increase in 2008 profits after tax vs 2007 profit after tax of \$110 Million?

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Solution:

a) What is your estimate for 2008 sales (\$)?

Total Market for ties= 10 millions units
Target market share=20%
Expected sales = 10*20% million ties
=2 million ties

Sale volume in \$=Expected sales*average selling price
=\$2*300 million
=\$600 million

b) What is your estimate of 2008 profits after tax?

Sale Revenue =\$600 million
Total expenses=60% of sales
=\$600*60% million
=\$360 million
Operating Profit= Sale Revenue-Total expenses
=600-360 =\$240 million
Tax liability = 50% of operating profit
=240*50% =\$120 million

Profit after tax=240-120=\$120 million

c) What is the percentage increase in 2008 profits after tax vs 2007 profit after tax of \$110 Million?

After tax profit in 2007=\$110 million
After tax profit in 2008=\$120 million
% increase in profit =(120-110)/110=9.09%

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