stuck on last part (Leverage and EPS) You have developed the following pro forma
ID: 2743618 • Letter: S
Question
stuck on last part
(Leverage and EPS) You have developed the following pro forma income statement for your corporation:. It represents the most recent year's operations which ended yesterday. Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions: a. if sales should increase by 30 percent by what percent would eamings before interest an taxes and nt ncme increase b. If sales should decrease by 30 percent, by what percent would earnings before interest and taxes and net income decrease? c. If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to parts a and b? a. If sales should increase by 30%, the percentage change in earnings before interest and taxes is 50.43 %. (Round to two decimal places ) If sales should increase by 30%, the percentage change in net income is 5642 %. (Round to two decimal places.) b. If sales should decrease by 30%, the percentage change in earnings before interest and taxes is -50.43 %. (Round to two decimal places.) If sales should decrease by 30%, the percentage change in net income is -56.42 %. (Round to two decimal places.) C. If sales should increase by 30% and interest expense should decrease by 50%, the percentage change in earnings before interest and taxes is 50.43 %. (Round and taxes is 5043. Round to two decimal places.) If sales should increase by 30% and interest expense should decrease by 50%, the percentage change in net income is (Round to two decimal places.)Explanation / Answer
If sales increase by 30% new sales = 45,713,000 * 1.3 = 59,426,900
If interest expense decreases by 50%, new interest expense = 1,446,000*0.5 = 723,000
EBT = 59,426,900 - 22,818,000 - 9,275,000-723,000 = 26,610,900
Net income after tax = 26,610,000*0.5 = 13,305,450
% change in net income = (13,305,450/6,087,000 - 1)* 100 = 118.59%
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