7. Oliver Industries reported net income of $75 million in 2017. The company’s corporate tax rate...

7. Oliver Industries reported net income of $75 million in 2017. The company’s corporate tax rate was 40% and its interest expense was $25 million. The company had $500 million in sales and its cost of goods sold was $350 million. Oliver’s goal is for its net income to increase by 20% (to $90 million) in 2018. It forecasts that the tax rate will remain at 40%, interest expense will increase by 40%, and cost of goods sold will remain at 70% of sales. What level of sales (to the closest million) will Oliver have to produce in 2018 in order to meet its goal for net income?

Expert Solution

calculation of required sales	($ in millions)
Target net income after tax	90
Target net income before tax = (90/(1-0.4)	150
add : interest expense (25*1.4)	35
Gross margin	185
required sales =185/(1-0.70)	617

jeff jeffy answered 2 years ago

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