Computation of Sales level for a target net income
Swann Systems has forecast this income statement for the upcoming year-
Sales $5,000,000
Operating costs (excluding depr and amort) 3,000,000
EBITDA $2,000,000
Depreciation and amortization 500,000
EBIT $1,500,000
Interest 500,000
EBT $1,000,000
Taxes (40%) 400,000
Net income $600,000
The company's president is unsatisfied with the forecast and wants to see higher sales and a forecasted net income of $2,000,000.
Assume that operating costs are always 60% of sales, and that depreciation and amortization, interest expense, and the company's tax rate (40%), will remain the same even if sales change. How much in sales would Swann have to obtain to generate $2,000,000 in net income?
a) $ 5,800,000
b) $ 6,000,000
c) $ 7,200,000
d) $ 8,300,000
e) $10,833,333