What are before-tax profits

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The last part of the recorded lecture introduced tax on profits. Suppose the IRS imposes a 20% tax.

Problem 1: Return to the Initial situation (200 pairs, $80 price per pair sold, $60 operating cost per pair). How much tax is paid? What are "Before-Tax Profits," "After-Tax Profits" and "After-Tax ROE?"

Similar to the in-class example, what are the percentage changes in revenue, taxes, before- and after-tax profits due to a ten percent increase in unit sales?

Problem 2:  Say a weakening macro-economy causes shoe sales to decline to 110. What are "Before-Tax Profits," "After-Tax Profits" and "After-Tax ROE?"

Problem 3:  Keep sales at 200 pairs. But labor costs (wages, benefits, pensions) jump to 75/pair from 40. Perform the same calculations. How is this loss making situation qualitatively different from that in B]?

Reference no: EM133002647

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