Edmonds Industries is forecasting the following income statement:Sales$10,000,000Operating costs excluding depreciation and amortization5,500,000EBITDA$ 4,500,000Depreciation and amortization1,200,000EBIT$ 3,300,000Interest500,000$ 2,800,000EBTTaxes (40%)1,120,000Net income$ 1,680,000The CEO would like to see higher sales and a forecasted net income of $2,100,000. Assumethat operating costs (excluding depreciation and amortization) are 55% of sales and thatdepreciation 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 taxespaid will change.) What level of sales would generate $2,100,000 in net income?

Forecast of sales value by taking the following points into account: Desired Net Income $2100000…

Answered: Edmonds Industries is forecasting the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Edmonds Industries is forecasting the following income statement: Sales $10,000,000 Operating costs excluding depreciation & amortization 5,500,000 EBITDA $4,500,000 Depreciation and amortization 900,000 EBIT $3,600,000 Interest 1,000,000 EBT $2,600,000 Taxes (40%) 1,040,000 Net income $1,560,000 The CEO would like to see higher sales and a forecasted net income of $2,496,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 14%. 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 $2,496,000 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations. $
The firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What is the shareholder's total rate of return? Immediately after…
The firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What is the WACC?
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The manager of Synergy Company's Stock Division projects the following for next year: Sales $221,870 Operating income 82,672 Operating assets 385,373 The manager can invest in an additional project that would require $58,427 investment in additional assets and would generate $9,772 of additional income. The company's minimum rate of return is $6%. What is the residual income for the Stock Division with the additional project. Do not round your intermediate calculations!!!
Cousins Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available: Annual sales are $80,000,000. Fixed assets are $40,000,000. The debt ratio is 40 percent. EBIT is $8,000,000. Tax rate is 25 percent. With an aggressive policy, current assets will be 30 percent of sales; with a conservative policy, current assets will be 70 percent of sales. With an aggressive financing policy, short-term debt will be 40 percent of the total debt; with a conservative financing policy, short-term debt will be 15 percent of the total debt. Interest rate for short-term debt is 10 percent. Interest rate for long-term debt is 14 percent. Required: Determine the return on equity for the aggressive approach and for the conservative approach. Discuss which approach you would choose.
A company has $2.5 million of sales today, SG&A costs of $2 million excluding depreciation, annual depreciation of $0.6 million, and a COGS of 70%. Management estimates that if there is a large growth in sales, then the increase of SG&A excluding depreciation will equal to 5% of sales increment, and the increase of depreciation will equal to 4% of sales increment. No other income during this time. • Then what are the cash breakeven sales? $ • Then what are the book breakeven sales? $ thousand thousand
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What is the Profit Margin for Stevenson Corporation, given the following info: Invested Assets = $550,000 Sales $660,000 = Income from Operations = $99,000 Desired minimum rate of return = 15.0% O 16.0% O 18.0% 15.0% 20.0%
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The firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What's the P&L?

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