Ask Question
10 March, 05:53

Tony Inc. has forecast the following numbers for this upcoming year: Sales $500,000 Cost of Goods Sold 300,000 Interest Expense 100,000 Net Income 60,000 The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company's sales were to increase to $1 million, its cost of goods sold would increase to $600,000. The company's CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $120,000. Assume that Tony's interest expense remains constant. In order to achieve this level of net income, what level of sales will the company have to achieve? (The company doesn't pay any preferred dividend and have zero depreciation)

+4
Answers (1)
  1. 10 March, 06:11
    0
    Sales = $750,000

    Explanation:

    Giving the following information:

    Sales $500,000

    Cost of Goods Sold 300,000

    Gross profit = 200,000

    Interest Expense 100,000

    EBT = 100,000

    Tax = 40,000

    Net income = 60,000

    The company's CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $120,000.

    Gross profit = [Net income / (1-t) ] + Interest

    Gross profit = 200,000 + 100,000 = 300,000

    Sales = gross profit/0.40 = 750,000

    Sales = 750,000

    COGS = 450,000

    Gross profit = 300,000

    Interest = 100,000

    EBT = 200,000

    Tax = 80,000

    Net profit = 120,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Tony Inc. has forecast the following numbers for this upcoming year: Sales $500,000 Cost of Goods Sold 300,000 Interest Expense 100,000 Net ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers