Imagine that a company is forecasting the following income statement for the upcoming year: sales 5,000,000 operating costs (excluding depreciation) 3,000,000 Gross Margin 2,000,000 Depreciaton 500,000 EBIT 1,500,000 Interest 500,000 EBT 1,000,000 Taxes (40%) 400,000 Net Income 600,000 The company's president is disappointed with the forecast and would like to see the company generate higher sales and a forecasted net income of $2,000,000. Assume that operating costs (excluding depreciation) are always 60 percent of sales. Also, assume that depreciation, interest expense, and the company's tax rate, which is 40 percent, will remain the same even if sales change. What level of sales would the firm have to obtain to generate $2,000,000 in net income?
Imagine that a company is forecasting the following income statement for the upcoming year: sales 5,000,000 operating costs (excluding depreciation) 3,000,000 Gross Margin 2,000,000 Depreciaton 500,000 EBIT 1,500,000 Interest 500,000 EBT 1,000,000 Taxes (40%) 400,000 Net Income 600,000 The company's president is disappointed with the forecast and would like to see the company generate higher sales and a forecasted net income of $2,000,000. Assume that operating costs (excluding depreciation) are always 60 percent of sales. Also, assume that depreciation, interest expense, and the company's tax rate, which is 40 percent, will remain the same even if sales change. What level of sales would the firm have to obtain to generate $2,000,000 in net income?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Imagine that a company is
|
sales |
5,000,000 |
| operating costs (excluding |
3,000,000 |
|
Gross Margin |
2,000,000 |
| Depreciaton | 500,000 |
| EBIT | 1,500,000 |
| Interest | 500,000 |
|
EBT |
1,000,000 |
| Taxes (40%) | 400,000 |
| Net Income | 600,000 |
The company's president is disappointed with the forecast and would like to see the company generate higher sales and a forecasted net income of $2,000,000.
Assume that operating costs (excluding depreciation) are always 60 percent of sales. Also, assume that depreciation, interest expense, and the company's tax rate, which is 40 percent, will remain the same even if sales change. What level of sales would the firm have to obtain to generate $2,000,000 in net income?
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