Green Caterpillar Garden Supplies Inc.

Income Statement for Year Ending December $31$

Year $1$ Year $2($Forecasted$)$

Net sales $$15,000,000$

$$18,750,000$

Less: Operating costs, except depreciation and amortization $9,000,000$

$11,250,000$

Less: Depreciation and amortization expenses $600,000600,000$

Operating income $($or EBIT$)$ $$5,400,000$

$$6,900,000$

Less: Interest expense $540,000$

$690,000$

Pre$-$tax income $($or EBT$)4,860,000$

$6,210,000$

Less: Taxes $(25\%)1,215,000$

$1,552,500$

Earnings after taxes $$3,645,000$

$$4,657,500$

Less: Preferred stock dividends $100,000$

$100,000$

Earnings available to common shareholders $3,545,000$

$4,557,500$

Less: Common stock dividends $1,458,000$

$1,759,500$

Contribution to retained earnings $$2,087,000$ $$2,539,250$

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

$$ In Year $2,$ if Green Caterpillar has $5,000$ shares of preferred stock issued and outstanding, then each preferred share should expect to receive $$40\mathrm{.}00$ in annual dividends.

$$ If Green Caterpillar has $400,000$ shares of common stock issued and outstanding, then the firm$$s earnings per share $($EPS$)$ is expected to change from in Year $1$ to in Year $2.$

$$ Green Caterpillar$$s earnings before interest, taxes, depreciation and amortization $($EBITDA$)$ value changed from $$6,000,000$ in Year $1$ to $$7,500,000$ in Year $2.$

$$ It is incorrect to say that Green Caterpillar$$s net inflows and outflows of cash at the end of Years $1$ and $2$ are equal to the company$$s annual contribution to retained earnings, $$2,087,000$ and $$2,539,250,$ respectively. This is because all but one of the items reported in the income statement involve payments and receipts of cash.