Please answer the following:
The publishing company "Marco Polo
" is setting up a new publishing venture to publish travel guides to exotic destinations.
At the start of the year he borrows ?100,000 from the bank, at an annual interest rate of 5%, and invests ?20,000 of his own money to start up the business.
He publishes ten travel guides together in the last three months of the year. He does all the editorial and production work himself without drawing a salary, and he uses freelance marketing and sales help to launch the books.
To produce each of the ten guides he spends ?5000 on writing fees, ?2,500 to typeset and design, and ?8,000 to print 5000 copies. Thus the books have a unit cost of ?3.10 and his total writing and production cost is ?155,000 (?15,500 for each Guide). Marco Polo
applies all the production costs to the first print run (that is the writing, typesetting and design and printing costs).
The guides retail at ?9.95, but for each copy, after average discount of 40%, he realises only ?6.00 in sales revenue. By the end of the year he manages to sell 3000 copies of each of the ten titles, making a total of 30,000 copies sold and ?180,000 in total sales revenue.
At the end of the first year he has incurred the following additional expenses:
Marketing and selling costs: ?25,000
Distribution costs ?12,600
Other overheads ?10,000
Interest payments ?5,000
Total expenses ?52,600
At the end of the year he has so far received ?90,000 in payment for sales made. The remaining invoiced sales revenue is still owed to him by retail booksellers.
1. Calculate the gross profit and net profit made by Marco Polo
after one year of trading. What is your assessment of the performance of his publishing business after a year? (max 250 words)
2. In order to develop the business further what financial matters should Marco Polo
be taking into account? What changes might Marco Polo
consider making to his business model? (max 400 words)
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