Reference no: EM131543517

You have developed the following pro forma income statement for your corporation:

Sales $45,777,000

Variable Costs (22,878,000)

Revenue before fixed costs 22,899,000

Fixed costs (9,110,000)

EBIT 13,789,000

Interest expense (1,298,000)

Earnings before taxes 12,491,000

Taxes (50%) (6,245,000)

Net Income 6,245,500

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 20%, by what percent would earnings before interest and taxes increase? What percent would net income increase? (Round to two decimal points)

B.) If sales should decrease by 20%, by what percent would earnings before interest and taxes decrease? What percent would net income decrease? (Round to two decimal points)

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?