Question

Edmonds Industries is forecasting the following income statement:

Sales	$5,000,000
Operating costs excluding depreciation & amortization	2,750,000
EBITDA	$2,250,000
Depreciation and amortization	750,000
EBIT	$1,500,000
Interest	450,000
EBT	$1,050,000
Taxes (25%)	262,500
Net income	$787,500

The CEO would like to see higher sales and a forecasted net income of $1,460,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 8%. The tax rate, which is 25%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $1,460,000 in net income? Round your answer to the nearest dollar, if necessary.

Answer 1

		Forecasted
Sales	50,00,000	72,05,926
Operating costs excluding depreciation & amortization	27,50,000	39,63,259	55% of Sales
EBITDA	22,50,000	32,42,667
Depreciation and amortization	7,50,000	8,10,000	8% Increase
EBIT	15,00,000	24,32,667
Interest	4,50,000	4,86,000	8% Increase
EBT	10,50,000	19,46,667
Taxes (25%)	2,62,500	4,86,667	25% of PBT
Net income	7,87,500	14,60,000
by solving the equation	we get sales as
(Sales-(55%*sales)-D&A-Interest)*(1-tax %)=14,60,000	72,05,926