Income Statement: Herman Industries isforecasting the following income statement
ID: 2662158 • Letter: I
Question
Income Statement: Herman Industries isforecasting the following income statement:
Sales $8,000,000
Operating costs excluding depr. & amort. 4,400,00
EBITDA $3,600,000
Depreciation &amortization 800,000
EBIT $2,800,000
Interest 600,000
EBT $2,200,000
Taxes($40%) 880,000
Net income $1,320,000
The CEO would like to see higher sales and a forecasted netincome of $2,500,000. Assume that operating costs (excludingdepreciation and amortization) are 55% of sales and thatdepreciation and amortization and interest expenses will increaseby 10%. The tax rate, which is 40%, will remain thesame. What level of sales would generate $2,500,000 in netincome?
Explanation / Answer
INCOMESTATEMENT
INCOMESTATEMENT
Sales ($5,706,667 / 1-0.55) $12,681,482 Less: Operating Cost excluding dip & amortization ($12,681,482 *0.55) ($6,974,815) EBITDA ($4,826,667 + $880,000) $5,706,667 Depreciation & Amortization ($800,000 * 0.10 +$80,000) ($880,000) EBIT ($4,166,667 + $660,000) $4,826,667 Interest expenses ($600,000 * 0.10 + $600,000) ($660,000) EBT ($2,500,000 / 1-0.40) $4,166,667 Less: Tax ($4,166,667* 0.40) ($1,666,667) Net Income $2,500,000