Question

Listed below is the 2021 income statement for Tom and Sue Travels, Inc.

TOM AND SUE TRAVELS, INC. Income Statement for Year Ending December 31, 2021 (in millions of dollars)

Net sales $ 16.200 Less: Cost of goods sold 7.300 Gross profits $ 8.900 Less: Other operating expenses 3.300 Earnings before interest, taxes, depreciation, and amortization (EBITDA) $ 5.600 Less: Depreciation 2.100 Earnings before interest and taxes (EBIT) $ 3.500 Less: Interest 0.755 Earnings before taxes (EBT) $ 2.745 Less: Taxes 0.576 Net income $ 2.169 The CEO of Tom and Sue’s wants the company to earn a net income of $2.350 million in 2022. Cost of goods sold is expected to be 50 percent of net sales, depreciation and other operating expenses are not expected to change, interest expense is expected to increase to $1.221 million, and the firm’s tax rate will be 21 percent.

Calculate the net sales needed to produce net income of $2.350 million.

Answer 1

Net income required in 2022 = $2,350,000

Expected Tax rate in 2020. = 21%

Income before tax (EBT) = 2,350,000/(1-0.21) = $2,974,684

EBIT = EBT + interest expenses

EBIT = 2,974,684 + 1,221,000 = 4,195,684

Gross profits = EBIT + depreciation + other operating expenses

Gross profits = 4,195,684 + 2,100,000 + 3,300,000 = $9,595,684

Cost of goods sold = 50%, Gross profit = 50%

So the net sales = 9,595,684/0.50 = $19,191,368

So, the net sales = $19,191,368 or $19.1914 millions