Question

​(Forecasting net income​)

In November of each​ year, the CFO of Barker Electronics begins the financial forecasting process to determine the​ firm's projected needs for new financing during the coming year. Barker is a small electronics manufacturing company located in​ Moline, Illinois, which is best known as the home of the John Deere Company. The CFO begins the process with the most recent​ year's income​ statement, projects sales growth for the coming​ year, and then estimates net income and finally the additional earnings he can expect to retain and reinvest in the firm. The​ firm's income statement for 2015​ follows:

Income Statement
	12/31/2015
Sales	$1,400,000
Cost of goods sold	840,000
Gross profit	$560,000
Operating costs	140,000
Depreciation expense	48,000
Net operating profit	$372,000
Interest expense	10,000
Earnings before taxes	$362,000
Taxes	115,840
Net income	$246,160
Dividends	$30,000
Addition to retained earnings	$216,160

.The electronics business has been growing rapidly over the past 18 months as the economy​ recovers, and the CFO estimates that sales will expand by 22 percent in the next year. In​ addition, he estimates the following relationships between each of the income statement expense items and​ sales:

​COGS/sales		60​%
Operating​ expenses/sales		10​%
Depreciation expense	​$	48,000
Interest expense	​$	10,000
Tax rate		32​%
​(Click on the icon located on the​ top-right corner of the data table above in order to copy its contents into a spreadsheet.​)

. Note that for the coming year both depreciation expense and interest expense are projected to remain the same as in 2015.

a. Estimate​ Barker's net income for 2016 and its addition to retained earnings under the assumption that the firm leaves its dividends paid at the 2015 level.

b. Reevaluate​ Barker's net income and addition to retained earnings if sales grow at 44 percent over the coming year.​ However, this scenario requires the addition of new plant and equipment in the amount of ​$80,000​, which increases annual depreciation to ​$55,000 per​ year, and interest expense rises to ​$14,000.

a. What is the estimate of​ Barker's net income for​ 2016?

​$ ​(Round to the nearest​ dollar.)

Answer 1