Question

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 75% 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 $300,000 and $1,250,775 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 2 Year 1 (Forecasted) Net sales $20,000,000 15,000,000 800,000 $4,200,000 420,000 3,780,000 1,512,000 $2,268,000 300,000 1,968,000 1,020,600 $947,400 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses 800,000 Operating income (or EBIT) Pre-tax income (or EBT) Earnings after taxes Earnings available to common shareholders Contribution to retained earnings Less: Interest expense Less: Taxes (40%) Less: Preferred stock dividends Less: Common stock dividends $1,228,725

Answer 1