Question

Edmonds Industries is forecasting the following income statement: $$ \begin{matrix} \text{Sales} & \text{\$ 10.000.000}\\ \text{Operating costs excluding depreciation & amortization} & \text{5.500.000}\\ \text{EBITDA} & \text{\$ 4.500.000}\\ \text{Depreciation and amortization} & \text{1.200.000}\\ \text{EBIT} & \text{\$ 3.300.000}\\ \text{Interest} & \text{500.000}\\ \text{EBT} & \text{\$ 2.800.000}\\ \text{Taxes (40\\%)} & \text{1.120.000}\\ \text{Net income} & \text{\$ 1.680.000}\\ \end{matrix} $$ The CEO would like to see higher sales and a forecasted net income of $2,100,000. 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$2.000.000 in net income?

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