The company's president is disappointed with the forecast and would like to see Swann generate higher sales and a forecasted net
income of $2,000,000. Assume that operating costs (excluding depreciation) are always 60 percent of sales. Also, assume that depreciation, interest expense, and the company's tax rate, which is 40 percent, will remain the same even if sales change. What level of sales would Swann have to obtain to generate $2,000,000 in net income?
1 answer:
Answer:
$2,000,000
Explanation:
The calculation of net income is shown below:-
Forecasted net income = $2,000,000
Tax = $2,000,000 ÷ 0.6 × 0.4
= $1,333,333.33
EBIT = Forecasted net income + Tax
= $2,000,000 + $1,333,333.33
= $3,333,333.33
Depreciation = $500,000
Gross Margin = $3,333,333.33 + $500,000
= $4,333,333.33
Operating cost = $6,500,000
Sales = Gross margin + Operating cost
= $4,333,333.33 + $6,500,000
= $10,833,333.33
At sales $10,833,333.33 Net Income would be $2,000,000
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Answer:
a) - r=5%:
- r=4%:
- r=3%:
b) - r=5%: t=14 years
- r=4%: t=17 years [/tex]
- r=3%: t=23 years [/tex]
c) The amount obtained is
- Compuonded quarterly: $5,191.83
- Compuonded continously: $5,200.71
The latter is always greater, since the more often it is capitalized, the greater the effect of compound interest and the greater the capital that ends up accumulating.
Explanation:
The rate of accumulation of money is
To calculate the amount of money accumulted in a period, we have to rearrange and integrate:
When t=0, S=S₀ (the initial capital).
Now we have the equation for the capital in function of time:
a) For an initial capital of $4000 and for a period of five years, the amount of capital accumulated for this interest rates is:
- r=5%:
- r=4%:
- r=3%:
b) We can express this as
- r=5%:
- r=4%:
- r=3%:
c) When the interest is compuonded quarterly, the anual period is divided by 4. In 5 years, there are 4*5=20 periods of capitalization. The annual rate r=0.0525 to calculate the interest is also divided by 4:
If compuonded continously, we have:
The amount obtained is
- Compuonded quarterly: $5,191.83
- Compuonded continously: $5,200.71
The latter is always greater, since the more often it is capitalized, the greater the effect of compound interest and the greater the capital that ends up accumulating.