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hermann industries is forecasting the following income statement:sales $8,000,000operating costs excluding depr & amort. 4,400,000EBITDA $3,600,000depreciation & amortization 800,000EBIT 2,800,000Interest 600,000EBT 2,200,000Taxes (40%) 880,000Net income 1,320,000The CEO would like to see higher sales and a forecasted net income of 2,500,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 10%. the tax rate, which is 40%, will remain the same. what level of sales would generate 2,500,000 in net income?

Respuesta :

Answer:

Based on revised assumptions, Hermann Industries will have to achieve sales revenue of $12,681,481 in order to generated target Net Income of $2,500,000  

Explanation:

                                           Hermann Industries

                             Statement to calculate Revised Sales

Net Income                                                    $2,500,000  

Add: Taxes (40%)                                  

(Net Income × 40% ÷ 60%)                              $1,666,667  

 

EBT                                                                     $4,166,667  

 

Add: Interest

($600,000 × (1+10%))                                        $660,000  

 

EBIT                                                             $4,826,667  

 

Depreciation & Amortization  

($800,000 × (1+10%))                                        $880,000  

 

EBITDA (45% of Sales)                                      $5,706,667  

 

Add: Operating Cost (55% of Sales)

(EBITDA  × 55% ÷ 45%)                                    $6,974,815  

 

SALES                                                            $12,681,481  

Revised Income Statement

                                           Hermann Industries

                                            Income Statement

Sales                                                            $12,681,481  

Operating Costs                                            $(6,974,815)  

EBITDA                                                             $5,706,667  

Depreciation & Amortization                    $(880,000)  

EBIT                                                             $4,826,667  

Interest                                                            $(660,000)  

EBT                                                                     $4,166,667  

Taxes (40%)                                                    $(1,666,667)

Net Income                                                    $2,500,000  

*Please note that figures in brackets represent negative figures.

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