Dominant Retailer (DR) is forecasting its next year’s sales and profits to renew its loans from its bank. It is projecting three scenarios an optimistic scenario where sales are high and costs are...

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Dominant Retailer (DR) is forecasting its next year’s sales and profits to renew its loans from its bank. It is projecting three scenarios an optimistic scenario where sales are high and costs are low, a most likely scenario of sales and costs, and a pessimistic scenario where sales are low and costs are high. Note that Profits = Sales – Variable Costs – Fixed Costs. The most likely scenario has a probability of 60%, and both the optimistic and pessimistic scenarios have a probability of 20%. The most likely forecast of sales is $750,000 with optimistic sales being 25% higher and pessimistic sales being 30% lower. Variable costs as a percentage of sales are projected at 35% if most likely, 30% if optimistic, and 42% if pessimistic. Fixed costs are projected at $80,000 if most likely, $75,000 if optimistic, and $90,000 if pessimistic. What is DR’s expected Profits using these three scenarios?
Answered Same DayOct 10, 2022

Answer To: Dominant Retailer (DR) is forecasting its next year’s sales and profits to renew its loans from its...

Rinki answered on Oct 10 2022
54 Votes
2
Given that
    SCENARIO
    PROBABILITY
    MOST LIKELY
    60%
    OPTIMISTIC
    20%
    PESSIMISTIC
    20%
CALCULATION OF SALES
    PARTICULARS
    WORKING
    SALES ($)
    MOST LIKELY
    GIVEN
    750000
    OPTIMISTIC
    (750000+25%)
    937500
    PESSIMISTIC
    (750000-30%)
    525000
CALCULATION OF VARIABLE COST
    PARTICULARS
    %...
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