Hermann Industries is forecasting the following income statement: Sales$8,000,00
ID: 2786679 • Letter: H
Question
Hermann Industries is forecasting the following income statement:
Sales$8,000,000Operating costs excluding depreciation & amortization4,400,000EBITDA$3,600,000Depreciation and amortization720,000EBIT$2,880,000Interest640,000EBT$2,240,000Taxes (40%)896,000Net income$1,344,000
The CEO would like to see higher sales and a forecasted net income of $2,688,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 15%. The tax rate, which is 40%, will remain the same. What level of sales would generate $2,688,000 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations
Explanation / Answer
Particulars Amount Projected Sales $8,000,000 $13,431,111 (6044000+7387111) Operating costs excluding depreciation & amortization 4,400,000 7,387,111 (6044000 x 55%/45%) EBITDA $3,600,000 $6,044,000 (5216000+828000) Depreciation and amortization 720,000 828,000 (720000 x 115%) EBIT $2,880,000 $5,216,000 (4480000+736000) Interest 640,000 736,000 (640000 x 115%) EBT $2,240,000 $4,480,000 (2688000+1792000) Taxes (40%) 896,000 1,792,000 (2688000*40%/60%) Net income $1,344,000 $2,688,000 Required Ans is $13,431,111