Question

Pro Forma Income Statement At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

$3,000 2,450 $ 550 250 Sales Operating costs excluding depreciation EBITDA Depreciation EBIT Interest EBT Taxes (40%) Net income $ 300 125 $ 175 70 $ 105

Looking ahead to the following year, the company’s CFO has assembled this information:

• Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.

• Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.

• Depreciation is expected to increase at the same rate as sales.

• Interest costs are expected to remain unchanged.

• The tax rate is expected to remain at 40%.

On the basis of that information, what will be the forecast for Roberts’ year-end net income?

Answer 1

(in millions of dollars) Sales Operating costs excluding depreciation EBITDA Depreciation EBIT Interest EBT Taxes (40%) Net Income 3,300.00 2,640.00 660.00 275.00 385.00 125.00 260.00 104.00 156.00 Sales = $3,000 + 10% * $3,000 = $3,300 Operating costs excluding depreciation = $3,300 * 80% = $2,640 Depreciation = $250 + 10% * $250 = $275 Taxes = $260 * 40% = $104