Mini-Case 11-7: Sharps and Flats

question 20

Multiple Choice

Mini-Case 11-7: Sharps and Flats
Anthony Gray has been interested in music since he was old enough to sit at the piano. He literally grew up with music, and he used his talent to earn his way through college. Anthony has grown tired of his job at a large music house in Houston and is seriously considering moving back to his hometown in Massachusetts to open his own small music shop. In researching this venture, Anthony notices that he must include a projected income statement in his loan application. Use the following statistics from Robert Morris Associates' Annual Statement Studies to answer the following question(s) .
Net Sales 100.0 percent
Cost of Sales 59.9 percent
Gross Profit 40.1 percent
Operating Expenses 31.2 percent
Net Profit (Before Taxes) 8.9 percent
-You are to prepare a projected income statement for a proposed business venture. Your desired income is $28,000 and you have the following published statistics: Costs of Goods Sold = 56.9 percent of net sales
Operating Expenses = 37.1 percent of net sales
Gross Profit Margin = 43.1 percent of net sales
This information indicates the net sales on your pro forma "P & L" (income statement) would be:

• A) $466,667.
• B) $491,228.
• C) $500,000.
• D) None of the above

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Definitions:

AFN Equation

Stands for Additional Funds Needed, a financial formula used to determine the additional financing a company will require in the future, based on its growth plans and financial policies.

Sales Growth Rate

The increase in sales over a specific period, typically expressed as a percentage, highlighting the company's ability to expand its operations and revenue.

Full Capacity Sales

The maximum potential sales revenue a company can achieve with its current resources and facilities, assuming full efficiency.

Net Income

A measure of a company's profitability, calculated as revenue minus expenses, taxes, and costs.