Abercrombie & Fitch, once the favorite of loyal teens, is considering lowering prices on all items it sells in an effort to win them back after several years of sales declines. A&F's total sales were $7 billion last year, but they have been declining in the face of a weak economy and an intensively competitive retail environment. Price reductions are often effective in increasing sales, but marketers need to analyze how much sales must go up before a price reduction pays off and increases revenue enough to make the it worth doing. Assuming A&F's gross profit margin is 65 percent and cost of goods sold represents the only variable cost, by how much must sales increase to maintain the same gross profit margin in terms of absolute dollars if A&F lowers prices by 5 percent?

The current gross profit is $

Abercrombie & Fitch, once the favorite of loyal teens, is considering lowering prices on all items it sells in an effort to win them back after several years of sales declines. A&F's total sales were $5billion last year, but they have been declining in the face of a weak economy and an intensively competitive retail environment. Price reductions are often effective in increasing sales, but marketers need to analyze how much sales must go up before a price reduction pays off and increases revenue enough to make the it worth doing. Assuming A&F's gross profit margin is 45 percent and cost of goods sold represents the only variable cost, by what percentage must costs decrease to maintain the gross margin percentage of 45 percent if A&F lowers prices by 15 percent?

Set the initial price equal to $1.00. Then the new price is

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