INCOME STATEMENT Edmonds Industries is forecasting the following income statemen

Question

INCOME STATEMENT Edmonds Industries is forecasting the following income statement: Sales Operating costs excluding depreciation & amortization EBITDA Depreciation and amortization EBIT Interest EBT Taxes (40%) Net income The CEO would like to see higher sales and a forecasted net income of $1,895,400. 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. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $1,895,400 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations. $9,000,000 4,950,000 $4,050,000 900,000 $3,150,000 720,000 $2,430,000 972,000 $1,458,000 $9385600

Explanation / Answer

Statement showing reverse calculation of EBITDA

Now assume Sales = X

Then Operating cost excluding depreciation and amortisation = X*0.55 = 0.55X

Thus X-0.55X = 4876200

=0.45X = 4876200

X =1,08,36,000$

Thus required sales amount = 10836000$

Current Projected Comment Steps to solve sum Sales 9000000 Operating cost excluding depreciation and amortisation 4950000 EBITDA 4050000 4876200 Depreciation and amortization + EBIT Step 6 Depreciation and amortization 900000 954000 6% increase from previous year Step 5 EBIT 3150000 3922200 Interest+EBT Step 4 Interest 720000 763200 6% increase from previous year Step 3 EBT 2430000 3159000 1895400/60% Step 1 Tax(40%) 972000 1263600 3159000*40% Step 2 Net income 1458000 1895400 Given( Starting point)

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