Given the following case, calculate the independent effects of a 1 percent increase in Gross Margin, a 1 percent decrease in the Tax Rate, and a 5 percent increase in Sales. Sales Cost of goods sold Selling, general, and administrative expense Depreciation Research and development Total costs and expenses Operating Income Interest expense Earnings before Income Taxes Provision for Income Taxes Net Income Base Case $ 2,110 1,456 317 160 53 $ 1,986 124 39 18 1% Increase in Gross Margin $ $ $85 $ Colossal Chemical Corporation Year Ended December 31, 2021 ($000,000 omitted) $67 $ 2131.10 $ 1470.46 319.67 160 53.28 2003.40 128 39 89 18.63 70.07 $ $ $ 1% Decrease in Tax Rate 2110 1456 317 160 53 1986 124 39 85 17 68 $ $ $ $ 5% Increase in Sale: 2215.50 1528.70 332.33 160 55.39 2076.41 139.09 39 100.09 21.02 79.07 For the base case in this section, as a percentage of sales, COGS = 69 percent, SGA = 15 percent, R&D=2.5 percent. Depreciation, Interest expense are fixed as stated. Tax Rate is 21 percent.

Given the following case, calculate the independent effects of a 1 percent increase in Gross Margin, a 1 percent decrease in the Tax Rate, and a 5 percent increase in Sales. Sales Cost of goods sold Selling, general, and administrative expense Depreciation Research and development Total costs and expenses Operating Income Interest expense Earnings before Income Taxes Provision for Income Taxes Net Income Base Case $ 2,110 1,456 317 160 53 $ 1,986 124 39 18 1% Increase in Gross Margin $ $ $85 $ Colossal Chemical Corporation Year Ended December 31, 2021 ($000,000 omitted) $67 $ 2131.10 $ 1470.46 319.67 160 53.28 2003.40 128 39 89 18.63 70.07 $ $ $ 1% Decrease in Tax Rate 2110 1456 317 160 53 1986 124 39 85 17 68 $ $ $ $ 5% Increase in Sale: 2215.50 1528.70 332.33 160 55.39 2076.41 139.09 39 100.09 21.02 79.07 For the base case in this section, as a percentage of sales, COGS = 69 percent, SGA = 15 percent, R&D=2.5 percent. Depreciation, Interest expense are fixed as stated. Tax Rate is 21 percent.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter9: Operating Activities

Section: Chapter Questions

Problem 2FIC

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