Blue Hamster Manufacturing Inc.'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. Blue Hamster 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 75% 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, Blue Hamster expects to pay $300,000 and $1,563,469 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.

Blue Hamster Manufacturing Inc. Income Statement for Year Ending December 31
	Year 1	Year 2 (Forecasted)
Net sales	$25,000,000	_______
Less: Operating costs, except depreciation and amortization	18,750,000	_______
Less: Depreciation and amortization expenses	1,000,000	1,000,000
Operating income (or EBIT)	$5,250,000	_______
Less: Interest expense	525,000	_______
Pre-tax income (or EBT)	4,725,000	_______
Less: Taxes (40%)	1,890,000	_______
Earnings after taxes	$2,835,000	_______
Less: Preferred stock dividends	200,000	_______
Earnings available to common shareholders	$2,535,000	_______
Less: Common stock dividends	1,275,750	_______
Contribution to retained earnings	$1,259,250	$1,610,906

■ In Year 2, if Blue Hamster has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive _____ in annual dividends.

■ If Blue Hamster has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from _____ in Year 1 to _____ in Year 3.

■ Blue Hamster's before interest, taxes, depreciation, and amortization (EBITDA) value changed from _____ in Year 1 to _____ in Year 2.

■ It is _____ to say that Blue Hamster's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $1,259,250 and $1,610,906, respectively. This is because _____ of the item reported in the income statement involve payments and receipts of cash.