Question

Edmonds Industries is forecasting the following income statement:

Sales	$5,000,000
Operating costs excluding depreciation & amortization	2,750,000
EBITDA	$2,250,000
Depreciation and amortization	500,000
EBIT	$1,750,000
Interest	300,000
EBT	$1,450,000
Taxes (25%)	362,500
Net income	$1,087,500

The CEO would like to see higher sales and a forecasted net income of $1,970,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate, which is 25%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $1,970,000 in net income? Round your answer to the nearest dollar, if necessary.

$ _____

chapter 3 question 9

Answer 1

	Current	Required
Sales	$5,000,000	7,792,592.59
Operating costs excluding depreciation & amortization	2,750,000	4,285,925.93
EBITDA	$2,250,000	3,506,666.67
Depreciation and amortization	500,000	550,000.00
EBIT	$1,750,000	2,956,666.67
Interest	300,000	330,000.00
EBT	$1,450,000	2,626,666.67
Taxes (25%)	362,500	656,666.67
Net income	$1,087,500	1,970,000.00
Hence, required Sales = $7,792,593