Question

Quantitative Problem: At the end of last year, Edwin Inc. reported the following income statement (in millions of dollars):

Sales	$4,140.00
Operating costs (excluding depreciation)	3,055.00
EBITDA	$1,085.00
Depreciation	305.00
EBIT	$780.00
Interest	170.00
EBT	$610.00
Taxes (25%)	152.50
Net income	$457.50

Looking ahead to the following year, the company's CFO has assembled this information:

• Year-end sales are expected to be 5% higher than $4.14 billion in sales generated last year.
• Year-end operating costs, excluding depreciation, are expected to increase at the same rates as sales.
• Depreciation costs are expected to increase at the same rate as sales.
• Interest costs are expected to remain unchanged.
• The tax rate is expected to remain at 25%.

On the basis of this information, what will be the forecast for Edwin's year-end net income? Enter your answers as positive values. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.

Edwin Inc. Income Statement
	(in millions of dollars)
Sales	$
Operating costs (excluding depreciation)
EBITDA	$
Depreciation
EBIT	$
Interest
EBT	$
Taxes (25%)
Net income	$

Answer 1

Income statement forecast for the year-end

(in millions of dollars) Sales (increased by 5%) $ 4,347.00 $3,207.75 Less: Operating costs (excluding depreciation) EBITDA $ 1,139.25 Less: Depreciation EBIT $ 320.25 $ 819.00 $ 170.00 $ 649.00 Less: Interest EBT Less: Taxes (25%) $ 162.25 Net Income $ 486.75

Increase in sales = $4,140 million * 5% = $207 million

Sales forecast for the year end = $4,347 million

Increase in Operating Costs excluding depreciation = $3,055 million * 5% = $152.75 million

Operating costs excluding depreciation forecast = $3,207.75 million

Increase in depreciation = $305 million *5% =$15.25 million

Depreciation forecast = $320.25 million

Interest remain same as $170 million

Tax rate remain same as 25%

Therefore, tax = EBT * 25% = $649 million*25%= $162.25 million