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1. Cute Camel is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before

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1. Cute Camel 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 70% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cute Camel expects to pay $200,000 and $1,281,375 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cute Camel, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Net sales Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 1 $20,000,000 14,000,000 800,000 Year 2 (Forecasted) $ 800,000 $5,200,000 $ Less: Interest expense Pre-tax income (or EBT) 520,000 4,680,000 Less: Taxes (25%) 1,170,000 Earnings after taxes $3,510,000 $ Less: Preferred stock dividends 200,000 Earnings available to common shareholders 3,310,000 Less: Common stock dividends 1,053,000 Contribution to retained earnings $2,257,000 $2,789,875

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