Cold Goose Metal Works Inc.’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. Cold Goose 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, Cold Goose expects to pay $200,000 and $1,537,650 of preferred and common stock dividends, respectively.

Required:
Complete the Year 2 income statement data for Cold Goose.

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jepessoa jepessoa · Answer 1 · 2020-07-11T03:18:07+02:00

Answer:

Cold Goose Metal Works Inc.

Income Statement

current year forecasted

net sales $30,000,000 $37,500,000

-operating costs excluding $21,000,000 $26,250,000

dep. and amortization

-dep. and amortization $1,200,000 $1,200,000

EBIT $7,800,000 $10,050,000

-interest expense $780,000 $1,507,500

EBT $7,020,000 $8,542,500

-income taxes $2,808,000 $3,417,000

net income $4,212,000 $5,125,500

-preferred stock div. $200,000 $200,000

earnings available to $4,012,000 $4,925,500

common stockholders

-common stock div. $1,537,650 $1,537,650

contribution to retained $2,474,350 $3,387,850

earnings