Home / Questions / Consider the following scenario Green Caterpillar Garden Supplies Incs income statement re...
Consider the following scenario: Green Caterpillar Garden Supplies 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. Green Caterpilar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% ofeamings before interest and taxes (EBIT). 2. The company's operating costs (excluding depreciation and amortization) at 80% 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 eamings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $200,000 and $803,250 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 2 (Forecasted) Year 1 $25,000,000 et sales Less: Operating costs, except depreciation and amortization 20,000 Less: Depreciation and amortization expenses 1,000 1,000 Operating income (or EBIT) $4,000,000 Less: Interest expense 00,000 Pre-tax income (or EBT) 3,600 Less: Taxes (40%) 440,000 Eamings after taxes $2,160,000 Less: Preferred stock dividends 200,000 Eamings available to common shareholders 1,960 Less: Common stock dividends 68,000 Contribution to retained eamings $1,674r250 $1,312,000
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