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

Question

You have developed the following pro forma income statement for your corporation: Sales $45,801,000 Variable Costs (22,755,000) Revenue before fixed costs 23,046,000 Fixed costs (9,258,000) EBIT 13,788,000 Interest expense (1,296,000) Earnings before taxes 12,,492,000 Taxes (50%) (6,246,000) Net Income 6,246,000 It represents the most recent years operations, which ended yesterday. Your Supervisor in the controllers office has just handed you a memorandum asking for written responses to the following questions: A.) If sales should increase by 30%, 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 30%, 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?

Explanation / Answer

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

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