Question

DO NOT USE EXCEL PLS EXPLAIN EACH STEP

Use AstroTurf Company's income statement below to answer the following two questions.

a. Calculate AstroTurf’s EBITDA.
b. Determine what level of sales would generate $3.3m in net income for the following year (Year 2), knowing that operating costs (excl. depreciation and amortization) will increase by 5%. The tax rate will not change.

Year 1 Income Statement:
Sales: $11,000,000
Operating costs (excl. depreciations & amortization): $4,500,000
Depreciation and amortization: $1,500,000
Interest: $700,000
Net Income: $2,800,000
Tax Rate: 35%*

Answer 1

(a)- AstroTurf’s EBITDA (Year 1) = $65,00,000

(b)- level of sales would generate $3.3m in net income for the following year (Year 2) = $1,20,00,000

PRO FORMA INCOME STATEMENT
AstroTurf Company
	Current Year (Year 1)	Next Year Forecast	Following Year (Year 2)
Sales	$1,10,00,000		$1,20,00,000
Less: Operating costs [Excluding depreciation & Amortization]	45,00,000	[$45,00,000 x 105%]	47,00,000
EBITDA	65,00,000		73,00,000
Less: Depreciation & Amortization	15,00,000	Same as Last Year	15,00,000
EBIT	50,00,000		58,00,000
Less: Interest	700,000	Same as Last Year	700,000
EBT	43,00,000	[$33,00,000 / 0.65]	51,00,000
Taxes at 35%	15,00,000		18,00,000
Net Income	28,00,000		33,00,000

NOTE*

The Actual Net Income for the year 1 is $27,95,000, but in the given income statement, the figures are rounded to the 5 decimal places. Therefore, I have rounded the following year (Year 2) statement figures into 5 decimal places.