h 06: Assignment - Accounting for Financial Management The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a pecified period of time. It reports a firm's gross income, expenses, net income, and the income that is available for distribution to its preferred and 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 ther financial statements and reports to evaluate the company's financial performance and condition Consider the following scenario: Green Caterpillar Garden Supplies Inc.'s income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% hext year. 1. Green Caterpillar 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 70% 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, Green Caterpillar expects to pay $200,000 and $1,537,650 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Ch 06: Assignment - Accounting for Financial Management Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 2 (Forecasted) Year 1 Net sales $30,000,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses 21,000,000 1,200,000 1,200,000 Operating income (or EBIT) $7,800,000 Less: Interest expense 780,000 Pre-tax income (or EBT) 7,020,000 Less: Taxes (40%) 2,808,000 Earnings after taxes $4,212,000 Less: Preferred stock dividends 200,000 Earnings available to common shareholders 4,012,000 Less: Common stock dividends 1,263,600 Contribution to retained earnings $2,748,400 $3,387,850 Given the results of the previous income statement calculations, complete the following statements: 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 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 in Year 2 change from in Year 1 to Green Caterpillar's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2 It is 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 of the items reported in annual contribution to retained earnings, $2,748,400 and $3,387,850, respectively. This is because the income statement involve payments and receipts of cash
