A proposed new investment has projected sales of $550,000. Variable costs are 40 percent of sales, and fixed costs are $130,500; depreciation is $50,750. Prepare a pro forma income statement assuming a tax rate of 23 percent. What is the projected net income?
A proposed new investment has projected sales of $550,000. Variable costs are 40 percent of sales, and fixed costs are $130,500; depreciation is $50,750. Prepare a pro forma income statement assuming a tax rate of 23 percent. What is the projected 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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Transcribed Image Text:### Problem Statement:
A proposed new investment has projected sales of $550,000. Variable costs are 40 percent of sales, and fixed costs are $130,500; depreciation is $50,750. Prepare a pro forma income statement assuming a tax rate of 23 percent. What is the projected net income?
### Solution:
**Pro Forma Income Statement:**
| Category | Amount |
|------------------|--------------|
| Sales | |
| Variable costs | |
| Fixed costs | |
| Depreciation | |
| EBT (Earnings Before Tax) | |
| Taxes | |
| Net income | |
### Details:
- **Sales**: The projected sales figure is $550,000.
- **Variable Costs**: These are 40% of sales. To calculate, multiply 40% by the sales figure.
- **Fixed Costs**: Defined as $130,500 in the problem.
- **Depreciation**: Set at $50,750.
- **EBT Calculation**: Subtract the sum of variable costs, fixed costs, and depreciation from sales.
- **Taxes**: Calculated at 23% of EBT.
- **Net Income**: Subtract taxes from EBT to get the projected net income.
This solution involves filling in the missing amounts using the provided data and performing the necessary calculations to determine the projected net income.
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