Question

22) Use the information about Billy's Burgers to answer the following question(s):

                                   Billy's Burgers

Figures in $ millions
Income Statement	2015	Balance Sheet	2015
Net Sales	246.0	Assets
Costs exc. Dep.	187.0	Cash	8.0
EBITDA	59.0	Accts. Rec.	21.0
Depreciation	17.2	Inventories	23.0
EBIT	41.8	Total Current Assets	52.0
Interest	12.0	Net PP&E	145.0
Pretax Income	29.8	Total Assets	197.0
Taxes	10.4
Net Income	19.4	Liabilities and Equity
		Accts. Payable	18.0
		Long-Term Debt	82.0
		Total Liabilities	100.0
		Total Stockholders' Equity	97.0
		Total Liabilities and Equity	197.0

a) Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' depreciation for 2016.

b) Using the percent of sales method, and assuming 20% growth in sales and no change in interest expense, estimate Billy's Burgers' pretax income for 2016.

c) Using the percent of sales method, and assuming 20% growth in sales and no change in interest expense, estimate Billy's Burgers' net income for 2016.

d) Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' accounts receivable for 2016.

Answer 1

i) Assuming the sales has been increased by 20%, using percentage of sales method, depreciation shall
also be increased by 20%.
Thus Depreciation for the year 2016 = Depreciation for the year 2015 + 20% increase
	= $17.2 millions X 120% = $20.6 milllions
ii)Using the percent of sales method, and assuming 20% growth in sales and no change in interest expense, estimate Billy's Burgers' pretax income for 2016.
EBIT for year 2016 = EBIT for year 2015 + 20% increase from 2015
= $41.8 *120% = $50.16 Millions
Pretax Income = EBIT for year 2016 - Interest
= $50.16 million - 12 = $38.16 millions
iii)c) Using the percent of sales method, and assuming 20% growth in sales and no change in interest expense, estimate Billy's Burgers' net income for 2016
Net Income = (EBIT - Interest) *(1- Income Tax Rate)
= ($41.8 million*1.2 - 12)*(1-10.4/29.8)
$24.84 millions
d) Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' accounts receivable for 2016
Accounts Receivable fr year 2016 = Accounts Receivable for year 2015 *120%
	= 21*120%
	$25.2 millions