Question

PRO FORMA INCOME STATEMENT Austin Grocers recently reported the following 2016 income statement (in millions of dollars): Sales Operating costs including depreciation EBIT $700 500 $200 Interest 40 $160 EBT Taxes (40%) Net income 64 $96 Dividends $32 Addition to retained earnings $64 For the coming year, the company is forecasting a 15% increase in sales, and it expects that its year-end operating costs, including depreciation, will equal 60% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant. a. What is Austin's projected 2017 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 $ b. What is the expected growth rate in Austin's dividends? Do not round your intermediate calculations. Round your answer to two decimal places. 이

Answer 1

A. Austin's projected net income, 2017.

Net income = Sales - operating cost - interest expenses - taxes

Sales = 700× 115% = 805

Operating cost including depreciation = 60% on sales

Operating costs including depreciation = 60% × 805= 483

EBT= 805- 483 - 40= 282

Tax amount= 282 ×40%= 112.8

Net income = EBT - tax amount = 282 - 112.8= 169.2

Net income = 169.2

B. Expected growth rate

Dividend payout ratio is same

Dividend payout ratio = dividend / net income = 32/96= 33.33%

Current year dividend = dividend payout ratio × Net income = 33.33% × 169.2= 56.4

Expected growth rate in dividend = ( current year dividend - previous year dividend ) / previous year dividend

Expected growth rate in dividend = (56.4 - 32) /32= 24.4/32

Expected growth rate in dividend = 76.25%