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Shearer Corporation had sales this year of $1,635 million, and sales are expected to grow by...

  1. Shearer Corporation had sales this year of $1,635 million, and sales are expected to grow by 20 percent next year. Next year Shearer expects cost of goods sold to be 60 percent of sales, selling expenses to be $20 million per month, depreciation to be $5 million per month, and interest expense to be $12 million per month. Taxes are computed at 35 percent. What is Shearer’s expected net income next year?

    1. $136.5 million.

    2. $188.7 million.

    3. $221.5 million.

    4. $380.8 million.

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Answer #1

Sales next year=$1635*(1+20%)=$1962 million

Cost of goods Sold=60%*Sales=60%*1962=1177.2 million

Gros Profit=Sales-Cost of goods Sold=$1962-$1177.2=784.8 million

Selling expenes=12*20=240 million

depreciation=12*5=60 million

EBIT(Operating profit)=Gross profit-selling expenses-depreciation=784.8-240-60=484.8 million

Net Income before taxes=EBIT-Interest expenses=484.8-(12*12)=340.8 million

Net Income=Net income before taxes*(1-tax rate)=340.8*(1-35%)=221.52 million

Option C is correct

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