2.	In 1980, continental books produced sales of approximately $150 million
and a net loss of  40 Million.  However, with a 35 percent share in a
rapidly growing market, continental seems well positioned to grow sales
revenue and achieve profitability.  The market for on-line purchase
was approx. $430 million in 1980  but was projected to grow over $1.5
billion by 1984.  The full market potential for on-line book buying is
estimated at $9 billion.

The average book price was $12 in 1980.  This results in an estimated
product volume of 12.5 million books.  Amazon achieves a 20% profit
margin on its sales.  (hint:  use the data from this paragrapgh to
calculate Continental's gross margin in 1980)

What would Continental's sales and contribution (gross profit margin)
be by 1984 if it were successful in protecting its market share of 35%
and the on-line book market grew to the projected level of $1.5
billion.  Continental's fixed expenses in 1980 (marketing and overhead)
were $58 million.  If these fixed expenses grow to $80 million in the
year 1984, what would Amazon’s net profit be in 1984?

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Clarification of Question by chilisguy-ga on 13 Dec 2002 17:17 PST

it should say what is continentals net profit be, and continental
achieves 20% not amazon

I assume you mean to ask "What would Continental's (not Amazon's) net
profit be in 1984.  There is no way to tell what Amazon's profit would
have been, as no assumptions are given in your request.

Answer: $17MM loss. (which makes certain assumptions below)

Sales: $525MM (35% of market share of $1.5 billion)
Gross Margin: $105MM (20% of sales, assuming Cont. achieves same GM as
Amazon)
- Fixed Expenses: $80MM (given)
- Variable Expenses: $42MM (in 1980, their variable exp. were 8% [*]
of sales, this answer assumes the same)
Net Loss: $17MM (assumes no NOL carryforwards)

[*] 8% variable expense rated calculated as:

1980:
Sales: $150MM 100.0%
GM: $30MM 20.0%
FIXED: $58MM 38.7%
VARIABLE: $12MM 8.0%
NET LOSS: $40MM (26.7%)