At the end of last year, Roberts Inc. reported the followingincome statement (in

Question

At the end of last year, Roberts Inc. reported the followingincome statement (in millions of dollars):

Sales                                                                                                    $3000

Operating costs including depreciation               2450

EBITDA                                                                                    $550

Depreciation                                                                     250

EBT                                                                                     $300

Interest                                                                                                  125

EBT                        $175

Taxes (40%)                       70

Net Income                  $105

Looking ahead to the following year, the company’s CFO hasassembled the following information:

·      Year-end sales are expectedto be 10 percent higher than the $ 3 billion in sales generatedlast year.

·      Year-end operating costs,excluding depreciation, are expected to equal 80 percent ofyear-end sales.

·      Depreciation is expected toincrease at the same rate as sales.

·      Interest costs are expectedto remain unchanged.

·      The tax rate is expected toremain at 40 percent.

On the basis of this information, what will be the forecast forRoberts’ year-end net income?

Explanation / Answer

Projected Income Statement

(in million of dollars)

Projected Income Statement

(in million of dollars)

Sales $3,300 ($3000 M * 10%) Operating Cost including depreciation ($2,640) (Operatinc Cost excluding Dep will equl to 80% ofSales) EBIT & D $660 Depreciation (10%) $66 EBIT $594 Interest ($125) EBT $469 Income Tax (40%) ($187.60) Net Income $281.40

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