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?

$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  

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