Problem 5 (Determination of Profitability) Toyota Auto Shop had sales of P700,000 in 20X5 and cost of goods sold represented 70 percent of sales. Selling and' administrative expenses were 12 percent of sales. Depreciation, expenše was P10,000 and interest expense for the year was P8,000. The firm's tax rate is 30 percent. Required: a. Compute earnings after taxes. b. Assume the firm hires Ms. Lim, an expert consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sale can "be expanded to P750,000. The extra sales effort will also reduce cost of goods sold to 66 percent of sales (there will be a larger makeup in prices-as a result of more aggressive selling). Depreciation expense will remain at P10,000.

Problem 5 (Determination of Profitability) Toyota Auto Shop had sales of P700,000 in 20X5 and cost of goods sold represented 70 percent of sales. Selling and' administrative expenses were 12 percent of sales. Depreciation, expenše was P10,000 and interest expense for the year was P8,000. The firm's tax rate is 30 percent. Required: a. Compute earnings after taxes. b. Assume the firm hires Ms. Lim, an expert consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sale can "be expanded to P750,000. The extra sales effort will also reduce cost of goods sold to 66 percent of sales (there will be a larger makeup in prices-as a result of more aggressive selling). Depreciation expense will remain at P10,000.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 2PROB

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