Homework $1$

Instructions:

$1.$ You can work in a group of $2-3$ or you can work alone. If you work in a group, please only submit

one work per group. If your group submit more than one work, I will only grade one of them. Also,

make sure to write everyone$$s name on the homework.

$2.$ Please use at least $3$ decimals to calculate all the steps and make sure you answer all the questions

with at least $3$ decimals. I may deduct points from your total grade if your answer is off significantly

because of the rounding.

$3.$ Due at the beginning of the class on Wednesday February $12,2025.$ Late work will not be accepted.

$4.$ Please make sure to write legibly. You can turn in a paper submission or a print submission.

$5.$ You must show your work to receive full credit $(30$ points$).$

a$.$ If you have the right answer without showing your work, you will receive a grade of zero for

that question.

b$.$ If you have a wrong answer but showing your work, you may receive some partial credits.

$1.$ A $2024$ Income Statement of Edmunds Co$.$ is provided below. $(16$ points$)$

Unit: $million

Sales $9$

Operating cost excluding D&A $5\mathrm{.}5$

EBITDA $3\mathrm{.}5$

Depreciation and amortization $($D&A$)1\mathrm{.}2$

EBIT $2\mathrm{.}3$

Interest Expenses $0\mathrm{.}5$

EBT $1\mathrm{.}8$

Taxes $(40\%)0\mathrm{.}72$

Net income $1\mathrm{.}08$

The CEO of Edmunds Co$.$ would like to construct a forecasted $2025$ Income Statement with the following

assumptions.

$-$ The CEO would like to have a net income of $$2,000,000$ rather than $$1,080,000.$

$-$ Reduce tax rate from $40\%$ to $27\%.$

$-$ Increase D&A and interest expense by $7\%.$ Hint: When something is increased by $7\%,$ you add $7\%$ on the

base. For example, if the base is $50,7\%$ of $50$ is $0\mathrm{.}07*50=3\mathrm{.}5.$ So$,$ the new number is $50+3\mathrm{.}5=53\mathrm{.}5.$ A quicker

way to do this is base$*(1+$rate$)$ or $50*(1+0\mathrm{.}07)=53\mathrm{.}5$

$-$ Operating cost excluding D&A is $50\%$ of new sales $($i$.$e$.,2025$ sales$).$ Note: The new sales is unknown.

Find the following items that would generate $$2,000,000$ in net income based on the new assumptions. You basically

need to reconstruct the entire income statement from the bottom up $($i$.$e$.,$ starting from the $$2$ million net income$).$

Find the following items for the $2025$ Income Statement.

$1.$ Taxes $(2$ points$)$

$2.$ EBT $(2$ points$)$

$3.$ Interest expenses $(2$ point$)$

$4.$ EBIT $(2$ point$)$

$5.$ D&A $(2$ point$)$

$6.$ EBITDA $(2$ points$)$

$7.$ Operating cost excluding D&A $(2$ point$)$

$8.$ Sales $(2$ points$)$Homework $1$

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