Question #3

3. Income statement The income statement, also known as the prot and ioss mm.) statement, provides a snapshot of the nancial performance of a company during a specied period of time. It reports a n'n'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 [GMW that match the rm'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 nancial statements and reports to evaluate the company's nancial performance and condition. Consider the following scenario: Cute Camel Woodcraft Company's income statement reports data for its rst year of operation. The rm's CED would like sales to increase by 25% next year. 1. Cute Camel 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 20% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 25% of its pretax income or earnings before taxes (EBT). 4. In Year 2, Cute Camel expects to pay $100,000 and $1,281,325 of preferred and common stock dividends, respectively. \fGiven the results of the previous income statement calculations, complete the following statements: . In Year 2, if Cute Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive 7 in annual dividends. . If Cute Camel has 400,000 shares of common stock issued and outstanding, then the rm's earnings per share [EPS]: is expected to change from v in Year 1 to v in Year 2. . Cute Camel's earnings before interest, taxes, depreciation and amorb'zation {EBI'I'DA) value changed from v in Year 1 to v in Year 2. . It is V to sa'i:r that Cute Camel's net inows and outows of cash at the end of Years 1 and 2 are equal to the companv's annual contribution to retained earnings, $1,4?9,50 and $1,822,062, respecb'velv. This is because 7 of the items reported in the income statement involve payments and receipts of cash