Question

A proposed new investment has projected sales of $515,000. Variable costs are 43 percent of sales, and fixed costs are $136,000; depreciation is $53,500. Prepare a pro forma income statement assuming a tax rate of 24 percent. What is the projected net income?

Answer 1

To prepare the pro forma income statement, we need to use the following formula:

Net Income = (Sales - Variable Costs - Fixed Costs - Depreciation) x (1 - Tax Rate)

Given:

Projected Sales = $515,000
Variable Costs = 43% of Sales
Fixed Costs = $136,000
Depreciation = $53,500
Tax Rate = 24%

Using the formula, we can calculate the projected net income as follows:

Net Income = ($515,000 - 0.43*$515,000 - $136,000 - $53,500) x (1 - 0.24)
Net Income = ($515,000 - $221,450 - $136,000 - $53,500) x 0.76
Net Income = $104,050 x 0.76
Net Income = $79,058

Therefore, the projected net income for the proposed investment is $79,058.