Earnings before interest and taxes and net income decrease

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Reference no: EM131014096

You have developed the following pro forma income statement for your corporation: Sales $ 45,757,000 Variable costs (22,864,000) Revenue before fixed costs 22,893,000 Fixed costs (9,206,000) EBIT 13,687,000 Interest expense (1,307,000) Earnings before taxes 12,380,000 Taxes (50%) (6,190,000) Net Income 6,190,000 It represents the most recent year’s operations, which ended yesterday. Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: A. If sales should increase by 25%, by what percent would earnings before interest and taxes and net income increase? B. If sales should increase by 25%, by what percent would earnings before interest and taxes and net income decrease? C. If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to parts A and B?

Reference no: EM131014096

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