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	$	17.000
Less: Cost of goods sold		7.700
Gross profits	$	9.300
Less: Other operating expenses		3.500
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	$	5.800
Less: Depreciation		2.500
Earnings before interest and taxes (EBIT)	$	3.300
Less: Interest		0.775
Earnings before taxes (EBT)	$	2.525
Less: Taxes		0.530
Net income	$	1.995

The CEO of Tom and Sue’s wants the company to earn a net income of $2.550 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 $1.241 million, and the firm’s tax rate will be 21 percent.

Calculate the net sales needed to produce net income of $2.550 million. (Enter your answer in millions of dollars rounded to 3 decimal places.)

Answer 1

TOM AND SUE TRAVELS, INC.
Income Statement for Year Ending December 31, 2021
(in millions of dollars)	2021	2022
Net sales	17	20.9377
Less: Cost of goods sold	7.7	10.46885
Gross profits	9.3	10.46885
Less: Other operating expenses	3.5	3.5
EBITDA	5.8	6.968848
Less: Depreciation	2.5	2.5
Earnings before interest and taxes (EBIT)	3.3	4.468848
Less: Interest	0.775	1.241
Earnings before taxes (EBT)	2.525	3.227848
Less: Taxes	0.53	0.677848
Net income	1.995	2.55
Hence, net sales required = $20.938 million