common shareholders The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm's revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company's financial performance and condition. Consider the following scenario: Blue Hamster Manufacturing 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. Blue Hamster 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 60% 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 taxes (EBT). 4. In Year 2, Blue Hamster expects to pay $200,000 and $2,111,400 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Blue Hamster Manufacturing Inc.Income Statement for Year Ending December 31 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 (40%) Earnings after taxes Year 1 $30,000,000 Year 2 (Forecasted) $ 18,000,000 1,200,000 1,200,000 $10,800,000 S 1,080,000 $9,720,000 S 3,888,000 $5,832,000 200,000 $5,632,000 S 1,749,600 $3,882,400 $4,726,600 Less: Preferred stock dividends Earings available to common shareholders Less: Common stock dividends Contribution to retained earnings Given the results of the previous income statement calculations, complete the following statements: 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. 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 2. Blue Hamster's before interest, taxes, depreciation and amortization (EBITDA) value changed from It is in Year 2. in Year 1 to 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, $3,882,400 and $4,726,600, respectively. This is because, statement involve payments and recepts of cash. of the items reported in the income