Question
Blue Hamster manufacturing Inc.'s income statement reports data for year of operation. The firm, CEO would like sales to increase by 25. Next Year. 1.
Blue Hamster manufacturing Inc.'s income statement reports data for year of operation. The firm, CEO would like sales to increase by 25. Next Year.
1. Blue Hamster is able to achieve this level of increased sales, but I. interest costs increase from 10%, to 15% of earnings before interest a. taxes (EBIT).
2. The company's operating cost (excluding depreciation and amortization) remain at 65% 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 earnings before tax. (EBT).
4. In Year 2, Blue Hamster expects to pay $200,000 and $1,216,350 of preferred and common stock dividends, respectively.
Blue Hamster Manufacturing Inc.
Income Statement for Year Ending December 31
Year 1
Year 2 (Forecasted)
Net sales
$20,000,000
(need answer)
Less: Operating costs, except depreciation and amortization
13,000,000
(need answer)
Less: Depreciation and amortization expenses
800,000
800,000
Operating income (or EBIT)
$6,200,000
(need answer)
Less: Interest expense
620,000
(need answer)
Pre-tax income (or EBT)
5,580,000
(need answer)
Less: Taxes (40%)
2,232,000
(need answer)
Earnings after taxes
$3,348,000
(need answer)
Less: Preferred stock dividends
200,000
(need answer)
Earnings available to common shareholders
$3,148,000
(need answer)
Less: Common stock dividends
1,004,400
(need answer)
Contribution to retained earnings
$2,143,600
$2,638,150
1.In Year 2, if Blue Hamster has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive .............in annual dividends.
2.If Blue Hamster has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from.... ......in Year 1.......... to in Year 3..
3. Blue Hamster's before interest, taxes, depreciation and amortization (EBITDA) value changed from.............. in Year 1 to.................. in Year 2.
4.It is .....................to say that Blue Hamster's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $2,143,600 and $2,638,150, respectively. This is................. because of the item reported in the income statement involve payments and receipts of cash.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started