Hermann Industries is forecasting the following income statement: Sales $5,000,0
ID: 2350585 • Letter: H
Question
Hermann Industries is forecasting the following income statement:Sales $5,000,000
Operating costs excluding depreciation & amortization 2,750,000
EBITDA $2,250,000
Depreciation and amortization 600,000
EBIT $1,650,000
Interest 500,000
EBT $1,150,000
Taxes (40%) 460,000
Net income $690,000
The CEO would like to see higher sales and a forecasted net income of $1,380,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 11%. The tax rate, which is 40%, will remain the same. What level of sales would generate $1,380,000 in net income?
Explanation / Answer
We will gp backwards Net income $1.38 m EBT = $2.3 m EBITDA= $2.3 + (1.11*$1.1 m ) = $ 3.521 m so sales = $ 3.521 m / 0.45 = $ 7,824,445