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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
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 65% of net sales, and its depreciation and amortization expenses remain constant from year to year. Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 1 Net sales Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes ( 25% ) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings $20,000,000 13,000,000 800,000 $6,200,000 620,000 5,580,000 1,395,000 $4,185,000 100,000 4,085,000 1,464,750 $2,620,250 Year 2 (Forecasted) 800,000 5 5 $3,194,281
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