For the upcoming year you believe that revenues will just ke

For the upcoming year, you believe that revenues will just keep up with inflation, which many analysts believe will equal 3%. Use the information given and the common-sized income statement approach to estimate next year’s net income. Please Show Work.

Last year, your firm reported the following:

Solution

Revenues = 20*1.03 = 20.6 M

CGS = 8*1.03 = 8.24 M

Dep and Amort = 2 M (assuming it does not change if there is no capital investment)

Interest expense = 5 M (same reason as above)

SG&A = 4 * 1.03 = 4.12

Net income = (20.6 - 8.24 - 2 - 5 - 4.12)*(1 - 0.4) = 0.744 M