Question

Fuzzy Button Clothing Company'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. Fuzzy Button 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 70.00% 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, Fuzzy Button expects to pay $100,000 and $896,963 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar Fuzzy Button Clothing Company Income Statement for Year Ending December 31 Year 1 Year 2 (Forecasted) Net $15,000,000 $ sales Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings 10,500,000 600,000 600,000 $3,900,000 $ 390,000 $3,510,000$ 1,404,000 $2,106,000$ 100,000 $2,006,000$ Screenshot 737,100 $1.109.037 $1 787

Answer 1

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