Use the information about Billy's Burgers to answer the following question(s):
Billy's Burgers

-Using the per cent of sales method, and assuming 15% growth in sales and no change in interest expense, estimate Billy's Burgers' Pre-tax Income for 2017.
A)$25.28 million
B)$35.76 million
C)$25.72 million
D)$24.84 million

Question

Use the information about Billy's Burgers to answer the following question(s):
Billy's Burgers
 
-Using the per cent of sales method, and assuming 15% growth in sales and no change in interest expense, estimate Billy's Burgers' Pre-tax Income for 2017.
A)$25.28 million 
B)$35.76 million 
C)$25.72 million 
D)$24.84 million

Quizplus · Accepted Answer

First, we need to calculate the current pre-tax income of Billy's Burgers. 
Pre-Tax Income = Total Sales - Total Expenses 
Pre-Tax Income = $88 million - ($39.6 million + $7.9 million + $16.5 million) 
Pre-Tax Income = $24 million

Next, we need to calculate the estimated sales for 2017 using the 15% growth rate: 
Estimated Sales for 2017 = $88 million * 1.15 
Estimated Sales for 2017 = $101.2 million

Using the per cent of sales method, we can estimate the pre-tax income for 2017: 
Pre-Tax Income for 2017 = Estimated Sales for 2017 * (Pre-Tax Income / Total Sales) 
Pre-Tax Income for 2017 = $101.2 million * ($24 million / $88 million) 
Pre-Tax Income for 2017 = $27.48 million

However, we are told that there will be no change in interest expense, which means that the pre-tax income for 2017 will be slightly lower than $27.48 million. The only answer choice that is closest to this value is C) $25.72 million.

Use the Information About Billy's Burgers to Answer the Following