Your pro forma income statement shows sales of $ 1 comma 000 comma 000, cost of goods sold as $ 500 comma 000, depreciation expense of $ 100 comma 000, and taxes of $ 160 comma 000 due to a tax rate of 40 %. What are your pro forma earnings? What is your pro forma free cash flow? Complete the pro forma income statement below: (Round to the nearest dollar.) Sales $ 1000000 Cost of Goods Sold $ (500000) Gross Profit $ 500000 Depreciation $ (100000) EBIT $ 400000 Taxes (40%) $ (160000) Earnings $ 240000 The pro forma free cash flow will be $
The correct answer for proforma earning is $240,000 and proforma free cash flow is $340,000.
Explanation:
According to the scenario, the computation of the given data are as follows
Sales = $1,000,000
Cost of goods sold (Less) = $500,000
Gross Profit = $500,000
Depreciation (Less) = $100,000
EBIT = $400,000
Taxes [40% × $400,000] = $160,000
Proforma Earnings = Sales - Cost of goods sold - Depreciation - Taxes
= $1,000,000 - $500,000 - $100,000 - $160,000 = $240,000
And we can calculate the proforma free cash flow by using following method:
Proforma Free cash flow = Proforma earning + Depreciation Amount
By putting the value, we get
Proforma free cash flow = $240,000 + $100,000 = $340,000
income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.
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