Surmec, Inc. has sales of $2.1 million last year. The company’s primary business

Question

Surmec, Inc. has sales of $2.1 million last year. The company’s primary business line is manufacturing of nuts and bolts. Since this is a mature industry, the analysts are certain that the sales will grow at a steady rate of 7 percent a year for as far as they can tell. The company reports net income that represents 23 percent of sales. The management would like to buy a new fleet of trucks, but can only do so only once the profit reaches $620,000 a year. At the end of what year will Surmec be able to buy the new fleet of trucks? Hint: Determine the current level of net income based upon the information given. Create a solution that illustrates how long it will take for this current level of income to grow to the target profit level, first using time value of money equations and then the NPER financial function: NPER(rate,pmt,pv,fv,type). Make sure that all cells are properly formatted. Current sales level: Profit margin: Current net income: Target profit level: Projected growth rate of sales: Result in years (equation): Result in years (NPER function): The company will achieve its profit target during year What will the sales and profit be that year? Hint: Find the level of sales for the year in which the profit level is reached and then use this sales figure to compute the profit level. Current sales level: Projected growth rate of sales: Target profit year: Target year sales (equation): Target year sales (FV function): Target year profit: Surmec, Inc. has sales of $2.1 million last year. The company’s primary business line is manufacturing of nuts and bolts. Since this is a mature industry, the analysts are certain that the sales will grow at a steady rate of 7 percent a year for as far as they can tell. The company reports net income that represents 23 percent of sales. The management would like to buy a new fleet of trucks, but can only do so only once the profit reaches $620,000 a year. At the end of what year will Surmec be able to buy the new fleet of trucks? Hint: Determine the current level of net income based upon the information given. Create a solution that illustrates how long it will take for this current level of income to grow to the target profit level, first using time value of money equations and then the NPER financial function: NPER(rate,pmt,pv,fv,type). Make sure that all cells are properly formatted. Current sales level: Profit margin: Current net income: Target profit level: Projected growth rate of sales: Result in years (equation): Result in years (NPER function): The company will achieve its profit target during year What will the sales and profit be that year? Hint: Find the level of sales for the year in which the profit level is reached and then use this sales figure to compute the profit level. Current sales level: Projected growth rate of sales: Target profit year: Target year sales (equation): Target year sales (FV function): Target year profit:

Explanation / Answer

Target year is year 4.

Target year sale $ 2,752,672

Target year profit $633,114

Details Growth rate 7% YOY Current Sale $ Year 1 Year 2 Year 3 Year 4 Year 5 Sales (compounded@7%)              2,100,000                        2,247,000                        2,404,290 2,572,590    2,752,672    2,945,359 Profit @ 23%                  483,000                           516,810                            552,987       591,696       633,114       677,432

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