Question

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

Answer 1

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