Question

Your pro forma income statement shows sales of $ 1 comma 000 comma 000​, cost of goods sold as $ 500 comma 000​, depreciation expense of $ 100 comma 000​, and taxes of $ 160 comma 000 due to a tax rate of 40 %. What are your pro forma​ earnings? What is your pro forma free cash​ flow? Complete the pro forma income statement​ below:  ​(Round to the nearest​ dollar.) Sales $ 1000000 Cost of Goods Sold $ (500000) Gross Profit $ 500000 Depreciation $ (100000) EBIT $ 400000 Taxes (40%) $ (160000) Earnings $ 240000 The pro forma free cash flow will be ​$

Answer 1

Answer:

The correct answer for proforma earning is $240,000 and proforma free cash flow is $340,000.

Explanation:

According to the scenario, the computation of the given data are as follows

Sales  = $1,000,000

Cost of goods sold  (Less) = $500,000

Gross Profit  = $500,000

Depreciation (Less) =  $100,000

EBIT  = $400,000

Taxes [40% × $400,000]  = $160,000

Proforma Earnings = Sales - Cost of goods sold  -  Depreciation - Taxes

= $1,000,000  - $500,000 - $100,000 - $160,000 = $240,000

And we can calculate the proforma free cash flow by using following method:

Proforma Free cash flow = Proforma earning + Depreciation Amount

By putting the value, we get

Proforma free cash flow = $240,000 + $100,000 = $340,000