Forecasting revenue from sales based on projected net income and operating costs.
Income Statement Hermann Industries is forecasting the following income statement:
|
Sales
|
$8, 000, 0000
|
|
Operating costs excluding Depreciation and amortization
|
$4,400,000
|
|
|
|
|
EBITDA
|
$3,600,000
|
|
Depreciation and amortization
|
800,000
|
|
EBIT
|
2,800,000
|
|
Interest
|
600,000
|
|
EBT
|
2,200,000
|
|
Taxes (40%)
|
880,000
|
|
Net Income
|
$1,320,000
|
The CEO would like to see a higher sales and a forecasted net income of $2,500,000
Assume that operating costs (excluding depreciation and amortization) are 55 percent of sales and depreciation and amortization and interest expenses will increase by 10 percent. The tax rate, which is 40 percent, will remain the same. What level of sales would generate $2,500,000 in net income?