Question

Austin Grocers recently reported the following 2019 income statement (in millions of dollars):

	Sales	$700
	Operating costs including depreciation	500
	EBIT	$200
	Interest	40
	EBT	$160
	Taxes (25%)	40
	Net income	$120
	Dividends	$40
	Addition to retained earnings	$80

For the coming year, the company is forecasting a 35% increase in sales, and it expects that its year-end operating costs, including depreciation, will equal 75% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

1. What is Austin's projected 2020 net income? Enter your answer in millions. For example, an answer of $13,000,000 should be entered as 13. Round your answer to two decimal places.
   $    million
2. 
   
3. What is the expected growth rate in Austin's dividends? Do not round intermediate calculations. Round your answer to two decimal places.
     %

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

($ in Millions) Sales Operating costs including depreciation EBIT Interest EBT 2019 $700.00 $500.00 $200.00 $40.00 $160.00 $40.00 $120.00 $40.00 $80.00 33.33% 2020 $945.00 $708.75 $236.25 $40.00 $196.25 $49.06 $147.19 $49.06 $98.13 33.33% Taxes (25%) Net income Dividends Addition to retained earnings Dividennd payout ratio 11 12 13 a. Net Income projected for 2020 $147.19 14 15 b. Expected growth rate in dividend 22.66% 16 17

Cell reference -

A 40 C ($ in Millions) 2019 Sales 700 Operating costs including depreciation 500 EBIT 200 Interest EBT Taxes (25%) 40 Net income 120 Dividends Addition to retained earnings 80 Dividennd payout ratio =C9/08 D 2020 =C2*(1+35%) =D2*75% =D2-D3 =C5 =D4-D5 =D6*0.25 =D6-D7 =D8*C11 =D8-D9 =C11 160 140 11 12 =D8 13 a. Net Income projected for 2020 14 15 b. Expected growth rate in dividend 16 =D9/09-1

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.