Income Statement Hermann Industries is forecasting the following income statemen
ID: 2730281 • 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 $1,218,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 6%. The tax rate, which is 40%, will remain the same. What level of sales would generate $1,218,000 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.
Sales $4,000,000 Operating costs excluding depreciation & amortization 2,200,000 EBITDA $1,800,000 Depreciation and amortization 200,000 EBIT $1,600,000 Interest 200,000 EBT $1,400,000 Taxes (40%) 560,000 Net income $840,000Explanation / Answer
As we have to achieve the Net Income, so start solving the problem from the bottom and reach-out to the requirement i.e Level of Sales.
At the level of sales of $5,453,334, we generate $1218000 in net income.
Sales (2454000 / 45%) $5,453,334 Operating costs excluding depreciation & amortization 2,999,334 EBITDA $2,454,000 Depreciation and amortization (increase of 6%) 212,000 EBIT $2,242,000 Interest (increase of 6%) 212,000 EBT $2,030,000 Taxes (40%) (1218000 * 40/60) 812,000 Net income $1218000