Cute Camel Woodcraft Company's income statement reports data for its 1 st year of operation. The Firm's
Question:
Cute Camel Woodcraft Company's income statement reports data for its 1st year of operation. The Firm's CEO would like sales to increase by 25% next year. Cute Camel is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest & taxes (EBIT). The company's operating costs (excluding depreciation & amortization) remain at 65% of net sales, & its depreciation & amortization expenses remain constant from year to year. The company's tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). In year 2, Cute Camel expects to pay $300,000 & $1,824,525 of preferred & common stock dividends, respectively.
Complete the Year 2 income statement data & then answer the questions that follow. Round each dollar value to the nearest whole dollar.
Year 1 | Year 2 (Forecasted) | |
Net Sales | $20,000,000 | |
Less: operating costs, except depreciation & amortization | 13,000,000 | |
Less: depreciation & amortization expenses | 800,000 | 800,000 |
Operating Income (EBIT) | $6,200,000 | |
Less: interest expense | 620,000 | |
Pre-Tax Income (EBT) | 5,580,000 | |
Less: taxes (40%) | 2,232,000 | |
Earnings after taxes | $3,348,000 | |
Less: preferred stock dividends | 300,000 | |
Earnings available to common shareholders | 3,048,000 | |
Less: common stock dividends | 1,506,600 | |
Contribution to Retained Earnings | $1,541,400 | $1,929,975 |
Given the results of the previous income statement calculations, complete the following statements:
A. In year 2, if cute camel has 25,000 shares of preferred stock issued & outstanding, then each preferred share should expect to receive ($12, $30, $18 or $24) in annual dividends.
B. If cute camel has 200,000 shares of common stock issued & outstanding, then the firm's earnings per share (EPS) is expected to change from ($31, $16.74, $27.90 or $15.24) in year 1 to ($33.79, $39.75, $18.77 or $20.27) in year 2.
C. Cute camel's before interest, taxes, depreciation & amortization (EBITDA) value changed from ($9.5M, $7M, $19.2M or $8.4M) in year 1 to ($8.7M, $20M, $12M or $26M) in year 2.
D. It is (CORRECT or INCORRECT) to say that cute camel's net inflows & outflows of cash at the end of years 1 & 2 are equal to the company's annual contribution to retained earnings, $1,541,400 & $1,929,975 respectively. This is because (ALL or ALL BUT ONE) of the item reported in the income statement involve payments & receipts of cash
Expert Answer:
Use the given criteria to prepare the forecasted income statement for the year 2 CCW Company Income ... View the full answer
