INCOME STATEMENT Edmonds Industries is forecasting the follo

INCOME STATEMENT Edmonds Industries is forecasting the following income statement: Sales Operating costs excluding depreciation & amortization EBITDA Depreciation and amortization EBIT Interest EBT Taxes (40%) Net income The CEO would like to see higher sales and a forecasted net income of $1,895,400. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 6%. The tax rate, which is 40%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $1,895,400 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations. $9,000,000 4,950,000 $4,050,000 900,000 $3,150,000 720,000 $2,430,000 972,000 $1,458,000 $9385600

Solution

Statement showing reverse calculation of EBITDA

Now assume Sales = X

Then Operating cost excluding depreciation and amortisation = X*0.55 = 0.55X

Thus X-0.55X = 4876200

=0.45X = 4876200

X =1,08,36,000$

Thus required sales amount = 10836000$

	Current	Projected	Comment	Steps to solve sum
Sales	9000000
Operating cost excluding depreciation and amortisation	4950000
EBITDA	4050000	4876200	Depreciation and amortization + EBIT	Step 6
Depreciation and amortization	900000	954000	6% increase from previous year	Step 5
EBIT	3150000	3922200	Interest+EBT	Step 4
Interest	720000	763200	6% increase from previous year	Step 3
EBT	2430000	3159000	1895400/60%	Step 1
Tax(40%)	972000	1263600	3159000*40%	Step 2
Net income	1458000	1895400		Given( Starting point)