Suppose that LaPearla’s revenues are expected to grow at a rate of 10% and all elements of the income statement and balance sheet are sales-driven except for the tax burden, which remains at 30%. LaPearla’s pro forma net income for 2006 is closest to:

LaPearla Company Income Statement
for Year 2005 (in millions)
LaPearla Company Balance Sheet,
End of Year 2005 (in millions)
Revenues h10,000 Current assets h2,000
Cost of goods sold 5,500 Net plant and equipment 18,000
Gross profit h4,500 Total assets h20,000
Selling, general, and
administrative expenses 800
Operating income h3,700 Current liabilities h1,000
Interest expense 500 Long-term debt 5,000
Earnings before taxes h3,200 Common stock and paid-in capital 500
Taxes 960 Retained earnings 13,500
Net income h2,240 Total liabilities and equity h20,000
A. h2.2 billion.
B. h2.5 billion.
C. h2.8 billion.

Ans: B. h2.5 billion.