Reference no: EM133140112

Question - George Coffin Jr. is the sole owner of the Coffin Vault Company in Duluth, MN. He inherited the company from his father. He has no children. Coffin is 60 years old and has decided that he wants to sell the company to his employees by creating an ESOP (Employee Stock Ownership Plan). He has 100 employees, and each employee would get one share of stock in the company. Each employee would be required to buy the share of stock for $10,000 to give the company $1,000,000 in cash as operating cash on hand.

The employees cannot sell their shares until 2027. All employees have accepted the terms of the agreement by giving the company treasurer their checks for $10,000. Coffin Vault makes high-end burial vaults using reinforced concrete. Each vault is self-sealing with a base and a cover that fits over the coffin when it is placed in a grave. The vault protects the gravesite from sinking. Without a vault, the coffin could collapse from the weight of the dirt above it. Under state and federal law, cemeteries cannot require the use of a vault, but most families buy one because they are encouraged to do so when they make funeral arrangements. Coffin vaults cost $10,000 each, but the materials to make them only cost $2,500. Labor and other administrative costs add an additional $5,000 to the cost of each vault. Annual sales for the company in 2021 totaled $10,000,000, and sales are expected to grow by 10 percent per year for the next five years.

The cost of materials would increase by 5 percent per year for five years. And salaries for employees would remain the same for five years, under the terms of the ESOP, which means that labor and administrative costs would remain at $5,000 per vault. Using the information above, create an annual income statement for 2021. What is EBIT for the company in year 2021?