Assignment:
During the first year of business for your swimwear store called Zig Zag, you had 13,400 visitors, of whom 3,350 made purchases. The average transaction size was $38.00. The Zig Zag operates on a gross margin of 55 percent and has annual fixed operating expenses of $30,000.00. Variable cost were 15 percent of sales. The two primary fixed expenses are rent of $1,100 a month and salaries of $1,200 a month. You keep all profits in the business to reinvest in inventory and other immediate business needs.
Because your first year was profitable you are now considering remodeling the store. Your landlord will not help with these expenses. To paint the exterior would be $ 1,400, to tile the floor would be $1,600. New lighting and fixtures would be $ 4,000. You believe that these changes will increase traffic by 10 percent and that your closure or conversion rate will increase to 30 percent. Will your proposed changes pay for themselves the first year? Show all work.