INCOME STATEMENT Edmonds Industries is forecasting the following income statemen
ID: 2816912 • Letter: I
Question
INCOME STATEMENT
Edmonds Industries is forecasting the following income statement:
The CEO would like to see higher sales and a forecasted net income of $2,937,600. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 9%. The tax rate, which is 40%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $2,937,600 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.
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Problem Walk-Through
INCOME STATEMENT
Edmonds Industries is forecasting the following income statement:
Sales $9,000,000 Operating costs excluding depreciation & amortization 4,950,000 EBITDA $4,050,000 Depreciation and amortization 540,000 EBIT $3,510,000 Interest 450,000 EBT $3,060,000 Taxes (40%) 1,224,000 Net income $1,836,000The CEO would like to see higher sales and a forecasted net income of $2,937,600. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 9%. The tax rate, which is 40%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $2,937,600 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.
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Explanation / Answer
Sales(100%)(balance)($5975100/0.45) $13,278,000 Operating costs excluding depreciation & amortization(55%)($13,278,000*0.55) $7302900 EBITDA($5386500+588600)(45%) $5975100 Depreciation and amortization(540,000*1.09) 588600 EBIT($4896000+490500) $5386500 Interest(450000*1.09) $490500 EBT(100%)(2937600/0.6) $4896000 Taxes@40%($4896000*0.4) $1958400 Net income(60%) 2937600