Unit sales are expected to grow by the same percentage (g) each year. During years 1 to

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Unit sales are expected to grow by the same percentage (g)

each year. During years 1 to 5, Peaco incurs two types of costs: variable costs and SG&A (selling, general, and administrative) costs. Each year, variable costs equal half of revenue. During year 1, SG&A costs equal 40% of revenue. This percentage is assumed to drop 2% per year, so during year 2, SG&A costs will equal 38% of revenue, and so on. Peaco’s goal is to have profits for years 0 to 5 sum to 0 (ignoring the time value of money). This will ensure that the

$4 million investment in year 0 is “paid back” by the end of year

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Practical Management Science, Revised

ISBN: 9781118373439

3rd Edition

Authors: Wayne L Winston, S. Christian Albright

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