Computation of sales level for a target net income

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Reference no: EM139824

Computation of Sales level for a target net income

Swann Systems has forecast this income statement for the upcoming year-

Sales $5,000,000

Operating costs (excluding depr and amort) 3,000,000

EBITDA $2,000,000

Depreciation and amortization 500,000

EBIT $1,500,000

Interest 500,000

EBT $1,000,000

Taxes (40%) 400,000

Net income $600,000

The company's president is unsatisfied with the forecast and wants to see higher sales and a forecasted net income of $2,000,000.
Assume that operating costs are always 60% of sales, and that depreciation and amortization, interest expense, and the company's tax rate (40%), will remain the same even if sales change. How much in sales would Swann have to obtain to generate $2,000,000 in net income?

a) $ 5,800,000

b) $ 6,000,000

c) $ 7,200,000

d) $ 8,300,000

e) $10,833,333

Reference no: EM139824

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