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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
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

Sales3,300

Less: Operating cost excluding

depreciation

2,640
EBITDA660
Less: Depreciation275
EBIT385
Less: Interest125
EBT260
Less: Taxes (40%)104
Net Income156

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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