Consolidated Statements of Operations

For Year Ended December 31 ($ thousands)

2019 2018 2017

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,578,995 $3,391,187 $3,309,616

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,659,728

2,566,246 2,444,984

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919,267 824,941 864,632

Operating expenses

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,593 143,969 134,300

Selling, general, and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,192 253,827 270,261

Production startup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,818 5,146 2,768

Restructuring and asset impairments

86,896

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,603 402,942 494,225

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516,664 421,999 370,407

Foreign currency (loss) gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,868) (1,461) 893

Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,516 18,030 16,752

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,975) (1,982) (1,884)

Other expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,502)

(4,485) (5,189)

Income before taxes and equity in earnings of unconsolidated affiliates . . . 519,835 432,101 380,979

Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,156 (31,188) (30,098)

Equity in earnings (loss) of unconsolidated affiliates, net of tax. . . . . . . . . . 20,430

(4,949) (163)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 546,421 $395,964 $350,718

Questions:

a. the effective tax rate for Sun Savers for each of the three years presented (to four decimal a

places such as 0.1234 or 12.34%). What do we observe? What might explain this rate?

b. Use the following assumptions to forecast the 2020 income statement.

Net sales growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.0% of net sales

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6% of net sales

Selling, general, and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 7.1% of net sales

Production startup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5% of net sales

Restructuring and asset impairments. . . . . . . . . . . . . . . . . . . . . . . . $0

Foreign currency (loss) gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $0

Interest income, Interest expense, net, and Other expense, net . . . No change in $

Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective rate for 2019

Equity in earnings (loss) of unconsolidated affiliates, net of tax. . . . Increase by 10% over FY2019

c. Compute the percent change in net income from actual 2019 to the 2020 forecasted net income.

d. Perform a sensitivity analysis by changing the effective tax rate and seeing the change in net income.

Instead of using the 2019 effective tax rate, use the average effective tax rate that prevailed over

the 2017 and 2018 period. Again, compute the tax rate to four decimal places. Compute the percent

change in net income from actual 2019 to the 2020 forecasted net income. How sensitive is net

income to the change in tax rate?

e. Perform a sensitivity analysis by changing the growth rate for net sales. Forecast the income state

ment for a range of growth rates, from 5% to 7% in 50basispoint increments (i.e., 5%, 5.5%, 6%,

6.5%, and 7%). For this part, use an effective tax rate of 7.56%.

f. Perform a sensitivity analysis by changing the cost of sales percent to determine the effect on net

income (not the entire income statement, only net income). Vary the cost of sales percent up and

down by 50 basis points from 74%. For this part, use an effective tax rate of 7.56% and include the

entire range of sales growth rates from 5% to 7%. That is, generate a table that shows net income

for three costofsales percentages and five salesgrowth rates. For each cell, compute the percent

change in net income from actual 2019 to the 2020 forecasted net incom