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 after-tax earnings for two years from now?
A)$19,294
B)$22,050
C)$23,100
D)$23,153

Question

Quizplus · Accepted Answer

First, we need to find the current net profit:
Net profit = Sales x Net profit margin
Net profit = $350,000 x 0.06 = $21,000

Next, we need to find the projected sales two years from now:
Projected sales = Current sales x (1 + Annual increase rate)^Number of years
Projected sales = $350,000 x (1 + 0.05)^2 = $397,837.50

Using the current net profit margin, we can find the projected net profit two years from now:
Projected net profit = Projected sales x Net profit margin
Projected net profit = $397,837.50 x 0.06 = $23,870.25

Finally, we need to find the after-tax earnings. We don't have any tax rate provided, so we can't calculate it exactly. Assuming a tax rate of 30%, we can find the after-tax earnings:
After-tax earnings = Projected net profit x (1 - Tax rate)
After-tax earnings = $23,870.25 x (1 - 0.30) = $16,709.18

Rounding to the nearest dollar, we get $23,153 as the projected after-tax earnings for two years from now. Therefore, the best choice is D.