you have developed the following pro forma income statement for your corporation

B) You have developed the following pro forma income statement for your corporation. Sales = $45,658,000 Variable costs = ($22,733,000) Revenue before fixed costs = $22,925,000 Fixed costs = ($9,164,000) EBIT $13,761,000 Interest Expense = ($1,408,000)

Earnings before Taxes = $12,353,000 Taxes (50%) = ($6,176,500) Net income = $6,176,500 It represents the most recent year’s operation, which ended yesterday. Your supervisor in the controller’s office has just handed you a memorandum for written responses

to the following questions. 1) If sales should increase by 20%, by what percent would earnings before interest and taxes and net income increase? 2) If sales should decrease by 20%, by what percent would earnings before interest and taxes and net income decrease?

3) If the form were to release its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to questions 1 and 2?