Hermann Industries is forecasting the following income statement: Sales $4,000,000 Operating costs excluding depreciation & amortization...

Hermann Industries is forecasting the following income statement: Sales $4,000,000 Operating costs excluding depreciation & amortization 2,200,000 EBITDA $1,800,000 Depreciation and amortization 440,000 EBIT $1,360,000 Interest 240,000 EBT $1,120,000 Taxes (40%) 448,000 Net income $672,000 The CEO would like to see higher sales and a forecasted net income of $1,142,400. 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. What level of sales would generate $1,142,400 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.

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Expert Solution

Let sales required be x

Sales x
Operating Costs 0.55x
Depreciation and Amortization 440000*1.08
Interest 240000*1.08
EBIT =0.45x-440000*1.08-240000*1.08
Taxes =40%*(0.45x-440000*1.08-240000*1.08)
Net Income =60%*(0.45x-440000*1.08-240000*1.08)

Hence,
60%*(0.45x-440000*1.08-240000*1.08)=1142400
=>x=(1142400/0.60+440000*1.08+240000*1.08)/0.45
=>x=5863111.111

New level of sales=5863111.111

jeff jeffy answered 2 years ago

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