Question

Here is the 2019 Income Statement for Karne’s automotive (numbers in millions) (next page...):Sales$16.5COGS 7.1Costs 3.2Depreciation and Amortization 2.9EBIT$ 3.3Interest 0.95EBT$ 2.35Taxes (30%) 0.71Net Income$ 1.65The CEO wants the company to earn a net income of $2.65 million in 2020. Cost of goods sold is expected to be 75% of sales; depreciation and other costs are not expected to change; interest expense is expected to increase to $1.050 million; the tax rate will be 30%. Calculate the sales needed to produce net income of $2.65 million.

Answer 1

Sales(balance)(100%)	$43.74 million(Approx)
COGS(75%)(43.74*75%)	32.81
Other costs	3.2
Depreciation and Amortization	2.9
EBIT(3.786+1.05)	4.836
Interest	1.05
EBT(100%)(2.65/0.7)	3.786(Approx)
Taxes(30%)(3.786*30%)	1.136(Approx)
Net income(70%)	2.65

NOTE:

Let sales be $x

Less:COGS=0.75x

Less:other costs=3.2

Less:Depreciation and Amortization=2.9

EBIT=4.836

Hence

x-0.75x-3.2-2.9=4.836

x(1-0.75)=4.836+3.2+2.9

x=10.936/0.25

=$43.74 million(Approx)