Swann Systems has forecast this income statement for the upcoming year: Sales $5

Question

Swann Systems has forecast this income statement for the upcoming year:

Sales $5,000,000
Operating Costs (excluding depr and amort) $ 3,000,000
EBITDA $2,000,000
Depreciation and amortization $500,000
EBIT $1,500,000
Interest $500,000
EBT $1,000,000
Taxes (40%) $400,000
Net income $600,000

The company's president is unsatisfied with the forecast and wants to see higher sales and a forecasted net income of $2,000,000.

Assume that operating costs are always 60% of sales, and that depreciation and amortization, interest expense, and the company's tax rate (40%), will remain the same even if sales change. How much in sales would Swann have to obtain to generate $2,000,000 in net income?

a. $5,800,000
b. $6,000,000
c. $7,200,000
d. $8,300,000
e. $10,833,333

Explanation / Answer

e. $10,833,333

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