Question

3. Income statement Aa Aa The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm's gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm's revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company's financial performance and condition. Consider the following scenario: Green Caterpillar Garden Supplies Inc.'s income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% next year 1, Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT). 2. The company's operating costs (excluding depreciation and amortization) remain at 65% of net sales, and its depreciation and amortization expenses remain constant from year to year 3. The company's tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4 In Year 2, Green Caterpillar expects to pay $100,000 and $1,773,844 of preferred and common stock dividends, respectively.

Answer 1

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In Year Microsoft Word (Product Activation Failed) File Home nert Page Layout Reterences Mallings Review ew Cut Find- Copy ae Replace B 1 y-ex: x' a-豐_a. Change Select Paste --= !' E . n Normal No Spaci Heading 1 Heading 2 Title Subtitle Subtle Em , S Format Painter Clipboard Font Paragraph Styles Editing 13 16 In Year 2, if Green caterpillar has 10,000 shares of preferred stock issued and outstanding, then each preferred share should expectto receive $10 in annual dividends. (100000/10000) If Green caterpillar has 500,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from $8.17 (=4085000/500000) in Year 1 to $9.93 (-4968125/500000) in Year 2 Green caterpillar 's before interest, taxes, depreciation and amortization (EBITDA) value changed from $8,750,000 (25,000,000 - 16,250,000) in Year 1 to $10,937,500 (-31,250,000-20,312,500) in Year 2 It is to WRONG say that Green caterpillar 's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $2,620,250 and $3,194,281 respectively. This is because NOT ALL of the item reported in the income statement involve payments and receipts of cash Pa : 1,310 English Ondia) 04:41 18-01-2019