Question

Forecasted Financial Statements The AFN equation provides useful insights into the forecasting process, but this equation assumes that all of the firm's key ratios remain constant, which is not likely to hold true. Consequently, it is useful to forecast the firm's financial statements. The firm begins with forecasting its -Select which then eeds into the firm's balance sheet. Management looks at operating a s on their relationship with industry and benchmark averages. The orecasted income statement begins it the prior year's Income statement and is adjusted for the sales growth forecast. Some inputs for the income statement are not under the firm's control - for example, tax and interest rates. The forecasted balance sheet is calculated from asset ratios that management has reviewed and changed based on Industry and benchmark averages. An Excel spreadsheet is used for this analysis because changes in assumptions, finandng, and ratios can be made to the statements to review aternative scenarios The impact of these changes on the firms forecasted financial statements ultimately can be used to improve the firm's operations. Quantitative Problem: At the end of last year, Edwin Inc. reported the following income statement (in millions of dollars) $4,140 3,049 $1,091 320 $771 170 $601 240 5361 Operating costs excluding depreclation EBITDA EBIT Interest EBT Taxes (40%) Net income Looking ahead to the following year, the company's CFO has assembled this information: " Year-end sales are expected to be 4% higher than $4.14 billion in sales generated last year. . Year-end operating costs, Including depreclation, are expected to Increase at the same rates as sales. Interest costs are expected to remain unchanged. " The tax rate is expected to remain at 40%. On the basis of this information, what will be the forecast for Edwin's year-end net income? Round your answer to the nearest whole million. Do not round Intermediate calculations. Enter all values as positive numbers. in millons of dollars) Operating costs including depreciation EBITDA EBIT Interest EBT Taxes Net income

Answer 1

Forecast year end net income is as follows:

Figures in million $

Sales : 4306

Operating cost including depreciation : 3504

EBIT: 802

Interest cost: 170

EBT : 632

TAX @ 40% : 253

NET INCOME: 379