Below is the forecasted free cash flow calculation for BA2 Plus Startup Inc., in millions of dollars, for next year.
Sales - 5,000 -Cost of Goods sold 1,500 -General and adm expense 500
EBIDT - 3,000 -Depreciation 200
EBIT - 2,800 -Income Tax 980
EBI - 1,820 +Depreciation 200, -Investment in fixed assets 300, -Investment in WCN 200
FCF 1,520
Assume that BA2 Plus Startup has no debt. The CEO would like the net income to be $2.5m. If operating costs are 30% of sales, general and administrative costs stay the same, and that depreciation and amortization expense increase by 15%, how high will sales have to be to hit the CEO’s net income target? Note that BA2 Plus Startup will enter a 40% marginal tax bracket when its net income is above $2m.