1, Green Caterpillar is able to achieve this level of increased sales, but its i
ID: 2332530 • Letter: 1
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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 70% 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 $1,537,650 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 14,000,000 800,000 $5,200,000 520,000 4,680,000 1,872,000 $2,808,000 300,000 2,508,000 1,263,600 $1,244,400 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 $1,579,350Explanation / Answer
Year 1 Year 2 Net Sales 20000000 25000000 Less Operating Cost 14000000 17500000 Less Depreciation 800000 800000 Operating Income 5200000 6700000 Less Interest Expense 520000 1005000 Pre Tax Income (or EBT) 4680000 5695000 Less Taxes 40% 1872000 2278000 Earnning After Taxes 2808000 3417000 Less Preffered stock Dividend 300000 300000 Earnnings Available to Common stockholder 2508000 3117000 Less Common Stock dividends 1263600 1537650 Contrbution to Retainned Earnnings 1244400 1579350
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