Question

Edmonds Industries is forecasting the following income statement: Sales $9,000,000 Operating costs excluding depreciation & amortization 4,950,000 EBITDA $4,050,000 Depreciation and amortization 1,170,000 EBIT $2,880,000 Interest 900,000 EBT $1,980,000 Taxes (25%) 495,000 Net income $1,485,000

The CEO would like to see higher sales and a forecasted net income of $2,350,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 13%. 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 $2,350,000 in net income? Round your answer to the nearest dollar, if necessary.

Answer 1

Sales [5472433/45%]	$      12,160,963
Operating costs excluding depreciation & amortization [12160963-5472433]	$        6,688,530
EBITDA [4150333+1322100]	$        5,472,433
Depreciation and amortization [1170000*113%]	$        1,322,100
EBIT [3133333+1017000]	$        4,150,333
Interest [900000*113%]	$        1,017,000
EBT [2350000/75%]	$        3,133,333
Taxes (25%)	$           783,333
Net income	$        2,350,000
Answer: Level of sales required =	$               12,160,963