question archive This year, Greenore Engineering Inc plans to invest $7 million in its sales and distribution network
This year, Greenore Engineering Inc plans to invest $7 million in its sales and distribution network
Subject:FinancePrice:2.84 Bought5
This year, Greenore Engineering Inc plans to invest $7 million in its sales and distribution network. The investment is expected to boost sales of Greenore's flagship product, the MultiHog, by $12 million this year and by $9 million next year. In addition, the company expects that as a result of the investment, sales of another of Greenore's products, the MiniHog, will rise by $3 million each year. Greenore's gross profit margin for the MultiHog is 25%, and its gross profit margin is 20% for the MiniHog. The company's marginal corporate tax rate is 30% both this year and next year.
What are the incremental earnings this year and next associated with the investment?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
1)Incremental earnings this year = $ 2.52 Million
2)Incremental earnings next year = $ 1.995 Million
Step-by-step explanation
Incremental earnings this year = (Increase in sales this year of Multihog * Gross Profit margin of Multihog + Increase in sales this year of Minihog * Gross Profit margin of Minihog) * (1- tax rate)
Incremental earnings this year = (12 * 25% + 3 * 20%) * (1-30%) = $2.52 Million
Incremental earnings next year = (Increase in sales next year of Multihog * Gross Profit margin of Multihog + Increase in sales next year of Minihog * Gross Profit margin of Minihog) * (1- tax rate)
Incremental earnings next year = (9 * 25% + 3 * 20%) * (1-30%) = $ 1.995 Million
