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Build a Model $3/13/23$

Chapter: $2$

Problem: $20$

a$.$ Britton String Corp. manufactures specialty strings for musical instruments and tennis racquets. Its most recent sales were $$880$ million; operating costs $($excluding depreciation$)$ were equal to $85\%$ of sales; net fixed assets were $$300$ million; depreciation amounted to $10\%$ of net fixed assets; interest expenses were $$22$ million; the state$-$plus$-$federal corporate tax rate was $25\%$; and it paid $40\%$ of its net income out in dividends. Given this information, construct its income statement. Also calculate total dividends and the addition to retained earnings. Report all dollar figures in millions.

The input information required for the problem is outlined in the "Key Input Data" section below. Using this data and the balance sheet above, we constructed the income statement shown below.

Key Input Data for Britton String Corp. $2023$

$($Millions of dollars$)$

Sales Revenue $$880$

Expenses $($excluding depreciation$)$ as a percent of sales $85\mathrm{.}0\%$

Net fixed assets $$300$

Depr. as a $\%$ of net fixed assets $10\mathrm{.}0\%$

Tax rate $25\mathrm{.}0\%$

Interest expense $$22$

Dividend Payout Ratio $40\%$

Britton String Corp.: Income Statement $2023$

$($Millions of dollars$)$

Sales $$748$

Operating costs excluding depreciation $30$

EBITDA $$102$

Depreciation $($Cumberland has no amortization charges$)$

EBIT

Interest expense

EBT

Taxes $(25\%)$

Net income

Common dividends

Addition to retained earnings