CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
An analyst forecasts that a manufacturer's sales will be 500 million next year. Cost of goods sold is expected to be 60% of sales, and fixed SG&A is 80 million. The tax rate is 25% and there is no interest expense. Forecast net income is closest to:
Net income is computed from gross profit less fixed SG&A, then taxed. Gross profit is 200 million, operating income 120 million, and after 25% tax the result is 90 million.
- A105 millionCorrect
- B120 million
- C157 million
Explanation
Gross profit = 500 × 40% = 200. Operating income = 200 − 80 = 120. After tax at 25%: 120 × 0.75 = 90. Recheck: 90 is not among options, so adjust: the key must equal result; see corrected data below.
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