Income Statement Hermann Industries is forecasting the following income statemen
ID: 2383542 • Letter: I
Question
Income Statement
Hermann Industries is forecasting the following income statement:
The CEO would like to see higher sales and a forecasted net income of $2,714,400. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 13%. The tax rate, which is 40%, will remain the same. What level of sales would generate $2,714,400 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.
Sales $8,000,000 Operating costs excluding depreciation & amortization 4,400,000 EBITDA $3,600,000 Depreciation and amortization 800,000 EBIT $2,800,000 Interest 480,000 EBT $2,320,000 Taxes (40%) 928,000 Net income $1,392,000Explanation / Answer
Solution:
Net Income Required $ 2,714,400 Befor tax net income (Net income / ( 1-40%) $ 4,524,000 Earning Before Tax $ 4,524,000 Add: Interest (113% *480,000) $ 542,400 Earnings before interest and tax (EBIT) $ 5,066,400 Add: Depreciation and amortization ( 113%*800,000) $ 904,000 EBITDA $ 5,970,400 Given, 55% is operating cost, therefore, EBITDA is 45% Operating cost $ 7,297,156 Sales (10,061,812/55%) $ 13,267,556