Question

The CEO of Tom and Sue’s wants the company to earn a net income of $2.800 million in 2022. Cost of goods sold is expected to be 60 percent of net sales, depreciation and other operating expenses are not expected to change, interest expense is expected to increase to $1.266 million, and the firm’s tax rate will be 21 percent. Calculate the net sales needed to produce net income of $2.800 million.

Answer 1

1.You need to calculate the Net sales you need to earn net income $2.8 Million.

2. Net is same as Profit after tax.

3. You need to know the cost sheet first to solve this. Cost sheet looks like;

Particulars	Amount
Sales	xxx
Less: Cost of good Sold	xxx
EBIT	xxx
Less Interest	xxx
PBT	xxx
Less Taxes	xxx
PAT	xxx

4. In this Question PAT in given i.e. net income you need to reverse calculate to reach the sale figure.

5. PBT =   

=

= 3.544 Approx

6. EBIT = PBT + Interest

= 3.544 + 1.266

= 4.81

7. Sales =   

=

= 12.025

So Net sales required would be $12.025 Million.