Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Fuzzy Button Clothing Company's income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% next
Fuzzy Button Clothing Company'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, 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 company's operating costs (excluding depreciation and amortization) remain at 80% 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, Fuzzy Button expects to pay $200,000 and $803,250 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Fuzzy Button Clothing Company Income Statement for Year Ending December 31 Year 2 Year 1 (Forecasted) $31,250,000 25,000,000 1,000,000 Net sales $25,000,000 20,000,000 1,000,000 $4,000,000 400,000 3,600,000 1,440,000 $2,160,000 200,000 1,960,000 648,000 $1,312,000 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 Earnings available to common shareholders Contribution to retained earnings Less: Preferred stock dividends Less: Common stock dividends $1,674,250
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