Question

INCOME STATEMENT

Edmonds Industries is forecasting the following income statement:

Sales	$5,000,000
Operating costs excluding depreciation & amortization	2,750,000
EBITDA	$2,250,000
Depreciation and amortization	300,000
EBIT	$1,950,000
Interest	300,000
EBT	$1,650,000
Taxes (40%)	660,000
Net income	$990,000

The CEO would like to see higher sales and a forecasted net income of $1,930,500. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 9%. The tax rate, which is 40%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $1,930,500 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.

Answer 1

Sales(balance)(100%)($3871500/0.45)	$8,603,333(Approx).
Operating costs excluding depreciation & amortization(55%)(8,603,333*55%)	$4,731,833.33(Approx).
EBITDA(45%)($3,544,500+327000)	$3871500
Depreciation and amortization(300,000*1.09)	327,000
EBIT($3,217,500+327000)	$3,544,500
Interest(300,000*1.09)	327,000
EBT(100%)(1,930,500/0.6)	$3,217,500
Taxes(40%)($3,217,500*0.4)	$1,287,000
Net income(60%)	1,930,500