Consider the following scenario:

Fuzzy Button Clothing Companys income statement reports data for its first year of operation. The firms CEO would like sales to increase by 25% next year.

1.	Fuzzy Button 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 companys 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 companys tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT).
4.	In Year 2, Fuzzy Button expects to pay $200,000 and $,1537,650 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar.

Fuzzy Button Clothing Company

Income Statement for Year Ending December 31

Year 1

Year 2 (Forecasted)

Net sales

$30,000,000

(need answer)

Less: Operating costs, except depreciation and amortization

21,000,000

(need answer)

Less: Depreciation and amortization expenses

1,200,000

1,200,000

Operating income (or EBIT)

$7,800,000

(need answer)

Less: Interest expense

780,000

(need answer)

Pre-tax income (or EBT)

$7,020,000

(need answer)

Less: Taxes (40%)

2,808 ,000

(need answer)

Earnings after taxes

$4,212 ,000

(need answer)

Less: Preferred stock dividends

200,000

(need answer)

Earnings available to common shareholders

$4,012,000

(need answer)

Less: Common stock dividends

1,263,600

(need answer)

Contribution to retained earnings

$2,748,400

$3,387,850

Given the results of the previous income statement calculations, complete the following statements:

	In Year 2, if Fuzzy Button has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive____ ($40, $60, $100, $80) in annual dividends.
	If Fuzzy Button has 400,000 shares of common stock issued and outstanding, then the firms earnings per share (EPS) is expected to change from___ ($10.03, $10.53, $19.50, $17.55) in Year 1 to____ ($21.36, $12.81, $12.31, $25.13)in Year 2.
	Fuzzy Buttons before interest, taxes, depreciation and amortization (EBITDA) value changed from____($12,012,000, $9,000,000, $28,800,000, $10,608,000) in Year 1 to____ ($31,375,000, $39,007,500, $11,250,000, $15,175,500) in Year 2.
	It is___(correct , incorrect) to say that Fuzzy Buttons net inflows and outflows of cash at the end of Years 1 and 2 are equal to the companys annual contribution to retained earnings, $2,748,400 and $3,387,850 , respectively. This is because ____(all, all but one) of the item reported in the income statement involve payments and receipts of cash.