Question

Edmonds Industries is forecasting the following income statement: Sales $5,000,000 Operating costs excluding depreciation & amortization...

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.

Homework Answers

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
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