Cold Goose Metal Works Inc.'s income statement reports data for its first year of operation. The firm's CEO would like sales to increase 25% next year.
1. Cold Goose is able to achieve this level of increased sales, but its interest cost increase from 10% to 15% of earnings before interest and tax (EBIT)
2. The company's operating cost (excluding depreciation and amortization) remains at 80% of net sales, and its depreciation and amortization expenses reamin constant from year to year.
3. The company's tax rate remains constant at 40% of its pre-tax income or EBT
4. In year 2, Cold Goose expects to pay $150,000 and $401, 625 of preferred and common stock dividends, respectively.
Complete the Year 2 income statement data for Cold Goose, the answer the questions that follow. Year 1 is already given.
Net Sales 15,0000
Less: Operating Cost (except depreciation and amorization) 12,000,000
Less: Depreciation and amortization expenses 600,000
Operating income (EBIT) 2,400,000
Less: Interest expense 240,000
Pre-tax income (EBT) 2,160,000
Less: taxes (40%) 864,000
Earnings after tax: 1,296,000
Less: preferred stock dividends 150,000
Earings available to common shareholders: 1,146,000
Less: Common stock dividends: 324,000
Contribution to retained earnings: 822,000
For year two, the only thing that is provided is the Depreciation and amortization expense, which is 600,000 and the contribution to retained earnings, which is 1,054,875.
Given the results of the previous income statement calculations, complete the following statements:
1. In year 2, if cold goose has 10,000 shares of preferred stock issues and outstanding, then each preferred share should expect to recieve _____ in annual dividends
2. If cold goose has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share is expected to change from ____ in Year 1 to ____ in Year 2.
3. Cold goose's before interest, taxes, depreciation, and amortization value changed from ____ in Year 1 to ______ in Year 2
4. If is (correct/incorrect) to say that cold goose's net inflows and outflows of cash and the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, 822,000 and 1,054,875, respectively. This is because (all but one/all) of the items in the income statement involves payments and receipts of cash.