Question

Edmonds Industries is forecasting the following income statement:

Sales	$8,000,000
Operating costs excluding depreciation & amortization	4,400,000
EBITDA	$3,600,000
Depreciation and amortization	480,000
EBIT	$3,120,000
Interest	400,000
EBT	$2,720,000
Taxes (25%)	680,000
Net income	$2,040,000

The CEO would like to see higher sales and a forecasted net income of $4,000,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 14%. 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 $4,000,000 in net income? Round your answer to the nearest dollar, if necessary.

$  

Answer 1

Particulars	Amount (In $'s)
Net Income	4,000,000
Add: Taxes @25%	1,333,333	4,000,000*25/75
Earnings before tax (EBT	5,333,333
Add: Interest	456,000	400,000*1.14
Earnings before Interest & Tax (EBIT	5,789,333
Add: Depreciation & Amortisation	547,200	480,000*1.14
Earnings before Interest Tax Depreciation & Amortisation (EBITDA)	6,336,533

Since Operating Costs are (Excluding Depreciation & Amortisation ) are 55% of Sales, Therefore EBITDA is 45% of Sales ( 100% - 55% )

Therefore, Sales = 6,336,533 / 45%

Level of Sales = $14,081,184