Question

McGwire Aerospace expects to have net cash flow of $12 million. The company forecasts that its operating costs excluding depreciation and amortization will equal 75 percent of the company’s sales. Depreciation and amortization expenses are expected to be $5 million and the company has no interest expense. All of McGwire’s sales will be collected in cash, costs other than depreciation and amortization will be paid in cash during the year, and the company’s tax rate is 40 percent. What is the company’s expected sales

Answer 1

Based on the net cash flow, the depreciation and amortization, and the tax rate, the expected sales of McGwire Aerospace is $66.67 million.

What are the expected sales?

First, find the net income:

= Net cash flow - depreciation and amortization

= 12 - 5

= 7 million

Given this net income, the sales are:

Net income = ( Sales - (Sales x 75%) - 5) x (1 - 40%)

7 / 0.60 = 0.25x - 5

11.67 = 0.25x - 5

0.25x = 16.67

x = 66.67 million

In conclusion, the expected sales are $66.67 million.

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