Problem:
Bell Brothers has $3,000,000 in sales. Fixed costs are estimated to be $100,000 and variable costs are equal to 50% of sales. The company has $1,000,000 in debt outstanding at a before-tax cost of 10%.
Required:
Question: If Bell Brothers' sales were to increase by 20%, how much of a percentage increase would you expect in the company's net income?
a. 19.79%
b. 18.80%
c. 21.92%
d. 23.08%
e. 20.83%
Note: Please show how to work it out.