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ear 2 income statement data for Fuzzy Button, then answer the questions that follow. Be sure to round each dollar value to ti
03: Assignment - Financial Statements, Cash Flow, and Taxes 1. Fuzzy Button is able to achieve this level of increased sales,
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Answer #1
Year 2
Year 1 (Forecasted) Workings
Net Sales $ 25,000,000.00 $ 31,250,000.00 Note
Less: Operating costs, except depreciation and amortization $ 20,000,000.00 $ 25,000,000.00
Less: Depreciation and amortization $   1,000,000.00 $   1,000,000.00
Operating income (or EBIT) $   4,000,000.00 $   5,250,000.00
Less: Interest expense $      400,000.00 $      787,500.00 ($ 4462500 x 15/85)
Pre-tax income (or EBIT) $   3,600,000.00 $   4,462,500.00 ($ 2677500 + $ 1785000)
Less: Taxes (40%) $   1,440,000.00 $   1,785,000.00 ($ 2677500 x 40/60)
Earnings after taxes $   2,160,000.00 $   2,677,500.00 ($ 2477500 + $ 200000)
Less: Preferred stock dividends $      200,000.00 $      200,000.00 (given)
Earnings available to common stockholders $   1,960,000.00 $   2,477,500.00 ($ 1674250 + $ 803250)
Less: Common stock dividends $      648,000.00 $      803,250.00 (given)
Contribution to retained earnings $   1,312,000.00 $   1,674,250.00
Note
Let net sales be x
Therefore, Operating costs = 0.8x
So, x - 0.8x - $ 1000000 = $ 5250000
0.2x = $ 6250000
x = $ 31250000
Net sales = $ 31250000
Operating costs = $ 31250000 x 0.8
= $ 25,000,000.00
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