Your business has been stagnant, revenues have been steady for two years in a ro

Question

Your business has been stagnant, revenues have been steady for two years in a row and profit margins are just 10%, which will remain constant. You think that a boost in marketing might be just the thing to revive your business.

Your sales today are $1MM per year and you expect them to grow 5% per year if expand your marketing program.

You have been investing all yearend profits in a fund that guarantees at 10% return every year.

Q1: What is the most that you should be willing to spend each year to expand your marketing program? (Assume that you will spend the same number of dollars per year, for ten years).

Explanation / Answer

Year Sales Increase from previous year Profit Return on Profit Amount that can be spend on marketing program 0 1,000,000.00 0.00 100,000.00 0.00 0.00 1 1,050,000.00 50,000.00 105,000.00 10,000.00 60,000.00 2 1,102,500.00 52,500.00 110,250.00 10,500.00 63,000.00 3 1,157,625.00 55,125.00 115,762.50 11,025.00 66,150.00 4 1,215,506.25 57,881.25 121,550.63 11,576.25 69,457.50 5 1,276,281.56 60,775.31 127,628.16 12,155.06 72,930.38 6 1,340,095.64 63,814.08 134,009.56 12,762.82 76,576.89 7 1,407,100.42 67,004.78 140,710.04 13,400.96 80,405.74 8 1,477,455.44 70,355.02 147,745.54 14,071.00 84,426.03 9 1,551,328.22 73,872.77 155,132.82 14,774.55 88,647.33 10 1,628,894.63 77,566.41 162,889.46 15,513.28 93,079.69

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.