Question

In: Accounting

The most recently completed income statement for PPR Corporation is given below, along with assumptions for...

The most recently completed income statement for PPR Corporation is given below, along with assumptions for the following year. Use this information and create a projected income statement for the company.

Sales15,000,000COGS 6,000,000Gross 9,000,000Operating Expenses 7,500,000Depreciation and Amortization 400,000EBIT 1,100,000Interest Expense 300,000EBT 800,000Taxes 240,000Net Income 560,000Shares 300,000EPS $ 1.87Sales increase by 20%COGS as a percentage of sales falls by 200 basis pointsOperating Expenses as a percentage of sales falls by 100 basis pointsDepreciation and Amortization increases by 20%The company issues $1,000,000 of additional debt at an interest rate of 7%The company retires $500,000 of existing debt at an interest rate of 12%The tax rate will remain the sameThe company sells an addition 50,000 shares of stock

Solutions

Expert Solution

CALCULATION OF TAX RATE -

EBT*RATE/100=TAX

800000*RATE/100=240000

RATE=240000*100/800000

=30%

TAX RATE REMAINS SAME FOR PROJECTED DATA

PROJECTED SALES=SALES+SALES*20%

15000000+15000000*20%

=18000000

COST OF GOODS SOLD %=COGS/SALE

6000000/15000000

=40%

PROJECTED COGS=ACTUAL DATA-ASSUMPTION

6000000-6000000*2%

200POINTS=2% BECAUSE 100 POINTS=1%

=5880000

PROJECTED OPERATING EXP=7500000-7500000*1%

=7425000

PROJECTED DEPRECIATION AND AMORTISATION EXPENSES=400000+400000*20%

=480000

INTEREST EXPENSES=100000*7%

7000

INT LESS 500000*12%=60000

PROJECTED INTEREST=300000+7000-60000

=247000

INCOME STATEMENT

SALES 18000000

COGS 5880000

SALES-COGS 12120000

-OPERATING COST 7425000

4695000

-DEP AMOR EXP 480000

EBIT 4215000

-INTEREST EXP 247000

EBT    3968000

TAX 1190400

NET EARNING 2777600

EARNING PER SHARE=TOTAL EARNING/OUTSTANDING SHARE

TOTAL SHARE=300000-SOLD(50000)

250000

EPS=2777600/250000

11.11

  


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