7. Oliver Industries reported net income of $75 million in 2017. The company’s c

Q: 7. Oliver Industries reported net income of $75 million in 2017. The company’s c

Answer: calculation of required sales ($ in millions) Target net income after tax 90 Target net income before tax = (90/(1-0.4) 150 add : interest expense (25*1.4) 35 Gross margin 185 required sales =185/(1-0.70) 617 calculation of required sales ($ in millions) Target net income after tax 90 Target net income before tax = (90/(1-0.4) 150 add : interest expense (25*1.4) 35 Gross margin 185 required sales =185/(1-0.70) 617

ID: 2656067 • Letter: 7

Question

7. Oliver Industries reported net income of $75 million in 2017. The company’s corporate tax rate was 40% and its interest expense was $25 million. The company had $500 million in sales and its cost of goods sold was $350 million. Oliver’s goal is for its net income to increase by 20% (to $90 million) in 2018. It forecasts that the tax rate will remain at 40%, interest expense will increase by 40%, and cost of goods sold will remain at 70% of sales. What level of sales (to the closest million) will Oliver have to produce in 2018 in order to meet its goal for net income?
7. Oliver Industries reported net income of $75 million in 2017. The company’s corporate tax rate was 40% and its interest expense was $25 million. The company had $500 million in sales and its cost of goods sold was $350 million. Oliver’s goal is for its net income to increase by 20% (to $90 million) in 2018. It forecasts that the tax rate will remain at 40%, interest expense will increase by 40%, and cost of goods sold will remain at 70% of sales. What level of sales (to the closest million) will Oliver have to produce in 2018 in order to meet its goal for net income?
7. Oliver Industries reported net income of $75 million in 2017. The company’s corporate tax rate was 40% and its interest expense was $25 million. The company had $500 million in sales and its cost of goods sold was $350 million. Oliver’s goal is for its net income to increase by 20% (to $90 million) in 2018. It forecasts that the tax rate will remain at 40%, interest expense will increase by 40%, and cost of goods sold will remain at 70% of sales. What level of sales (to the closest million) will Oliver have to produce in 2018 in order to meet its goal for net income?

Explanation / Answer

Answer:

calculation of required sales

($ in millions)

Target net income after tax

Target net income before tax = (90/(1-0.4)

150

add : interest expense (25*1.4)

Gross margin

185

required sales =185/(1-0.70)

617