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Question

Click here to read the eBook: The Income Statement Problem Walk-Through INCOME STATEMENT Edmonds Industries is forecasting the following income statement Sales Operating costs excluding depreciation & amortization 3,850,000 EBITDA Depreciation and amortization EBIT Interest EBT Taxes (40%) Net income The CEO would like to see higher sales and a forecasted net income of $1,814,400. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 8%. 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 $1,814,400 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations $7,000,000 $3,150,000 490,000 $2,660,000 420,000 $2,240,000 896,000 $1,344,000

Explanation / Answer

Sales(100%)($4006800/0.45) $8904000 Operating costs excluding depreciation and amortization(0.55*Sales)(8904000*0.55) $4897200 EBITDA(45%)($3477600+529200) $4006800 Depreciation and amortization(490000*1.08) $529200 EBIT($3024000+453600) $3477600 Less:interest(420000*1.08) $453600 EBT(100%)(1814400/0.6) $3024000 Taxes@40%($3024000*40%) $1209600 Net income(60%) 1814400

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