Austin Grocers recently reported the following 2008 income statement (in millions of dollars): Sales $700 Operating costs

Question:

Austin Grocers recently reported the following 2008 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

This year the company is forecasting a 25% increase in sales; and it expects that its yearend operating costs, including depreciation, will equal 70% of sales. Austin’s tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

a. What is Austin’s projected 2009 net income?

b. What is the expected growth rate in Austin’s dividends?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...