   Chapter 17, Problem 7P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars): Sales $3,000 Operating costs excluding depreciation 2,450 EBITDA$ 550 Depreciation 250 EBIT $300 Interest 125 EBT$ 175 Taxes (40%) 70 Net income $105 Looking ahead to the following year, the company’s CFO has assembled this information:• Year-end sales are expected to be 10% higher than the$3 billion in sales generated last year.• Year-end operating costs, excluding depreciation, are expected to equal 80% of year-end sales.• Depreciation is expected to increase at the same rate as sales.• Interest costs are expected to remain unchanged.• The tax rate is expected to remain at 40%.On the basis of that information, what will be the forecast for Roberts’ year-end net income?

Summary Introduction

To determine: The net income of R Incorporation.

Introduction:

Income Statement:

This is the statement that gives the information related to the net income of the company. Income statement is the part of financial statement of the company. It gives the information about the income earned or the loss suffered by the company during a year.

Explanation
 R Incorporation Projected Income Statement For the year ended 20XX Particulars Amount ($) in millions Sales 3,300 Less: Operating cost excluding depreciation 2,640 EBITDA 660 Less: Depreciation 275 EBIT 385 Less: Interest 125 EBT 260 Less: Taxes (40%) 104 Net Income 156 Table-1 Working Notes: Calculate sales Sales=$3,000million+($3,000 million×10%)=$3,000 million+$300 million=$3,300 million

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