Pro forma income statement Austin Grocers recently reported the following 2012 i

Question

Pro forma income statement

Austin Grocers recently reported the following 2012 income statement (in millions of dollars):

For the coming year, the company is forecasting a 25% increase in sales; and it expects that its year-end operating costs, including depreciation, will equal 65% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

Pro forma income statement

Austin Grocers recently reported the following 2012 income statement (in millions of dollars):

Sales $700 Operating costs including depreciation 500 EBIT $200 Interest 40 EBT $160 Taxes (40%) 64 Net income $96 Dividends $32 Addition to retained earnings $64

For the coming year, the company is forecasting a 25% increase in sales; and it expects that its year-end operating costs, including depreciation, will equal 65% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

1. What is Austin's projected 2013 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? Round your answer to two decimal places.
   %

Explanation / Answer

1. 2013 sales = 700*1.25 = 875

2013 operating costs = 65%*875 = 568.75

2013 EBIT = 875-568.75 = 306.25

2013 net income = (EBIT-interest)*(1-tax rate) = (306.25-40)*(1-40%) = 159.75 million

2. Growth in net income = 159.75 / 96-1 = 66.41%

As dividend payout ratio is same, growth rate in dividend = growth rate in net income = 66.41%

Hope this helped ! Let me know in case of any queries.

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