Swann Systems is forecasting the following income statement for the upcoming year: Sales $5,000,000 Operating costs (excluding depreciation) $3,000,000 Gross margin Depreciation $2,000,000 $500,000 EBIT $1,500,000 Interest Expenses $500,000 EBT $1,000,000 Taxes (40%) Net income $400,000 $600,000 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% of sales. Also, assume that depreciation, interest expense, and the company's tax rate, which is 50 percent, will remain the same even if sales change. What level of sales would Swann have to obtain to generate $1,800,000 in net income? 28. Which of the following statements is NOT correct? A) Many companies have cyclical operating cash needs due to the seasonality of sales, which requires companies to build up inventory prior to cash being collected from customers. B) C) A letter of credit Provides a guarantee of payment from the buyer, reducing the credit risk to the seller Covenants represent terms and conditions set forth in a lending agreement to reduce the probability of nonpayment and help lenders detect deteriorating loan quality D) When considering the results of an Altman Z-Score analysis, a score of 2.50 suggests the company is healthy and there is a low bankruptcy potential in the short-term. E) Accounts receivables, net, reported in the current asset section of a balance sheet represents the total amount to be expected to collect from customers within the next year.
