The following is the 2018 income statement for Lamps,Inc. The CEO of Lamps wants the company to earn a net income of $12 million in 2018.Cost of goods sold is expected to be 75 percent of net sales,depreciation expense is not expected to change,interest expense is expected to increase to $4 million,and the firm's tax rate will be 40 percent.What is the net sales needed to produce net income of $12 million?
A) $29 million
B) $112 million
C) $116 million
D) $124 million

Question

The following is the 2018 income statement for Lamps,Inc.  The CEO of Lamps wants the company to earn a net income of $12 million in 2018.Cost of goods sold is expected to be 75 percent of net sales,depreciation expense is not expected to change,interest expense is expected to increase to $4 million,and the firm's tax rate will be 40 percent.What is the net sales needed to produce net income of $12 million?
A) $29 million 
B) $112 million 
C) $116 million 
D) $124 million

Quizplus · Accepted Answer

11ea8218_2a73_0c27_bbd8_4dd1d62c5a5d_TB1326_00 Step 1: EBT (1 - t) = Net income = $12m = EBT (1 - 0.4) => EBT = $12m/(1 - 0.4) = $20m
Step 2: EBIT = EBT + Interest = $20m + $4m = $24m
Step 3: Gross profits = EBIT + Depreciation = $24m + $5m = $29m
Step 4: Net sales = Gross profits/(1 - Cost of goods sold percent) = $29m/(1 - 0.75) = $116m
Step 5: Cost of goods sold = Sales - Gross profits = $116m - $29 = $87m

The Following Is the 2018 Income Statement for Lamps,Inc