Question:
Dr. Zhivago Diagnostics Corp. income statement for 2010 is as follows:
|
2009 |
| Sales |
$2,000,000 |
| Cost of goods sold |
$1,400,000 |
| Gross Profit |
600,000 |
| Selling & administrative expense |
300,000 |
| Operating profit |
300,000 |
| Interest expense |
50,000 |
| Income before taxes |
$250,000 |
| Taxes (35%) |
75,000 |
| Income after taxes |
175,000 |
a. Compute the profit margin for 2010.
b. Assume in 2011, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes. What are income after taxes and the profit margin for 2011?