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% next 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 60% 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 pre-tax income or earnings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $100,000 and $1,759,500 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. Net sales 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 (25%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 1 $15,000,000 9,000,000 600,000 $5,400,000 540,000 4,860,000 1,215,000 $3,645,000 100,000 3,545,000 1,458,000 $2,087,000 Year 2 (Forecasted) 600,000 $ $2,539,250
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% next 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 60% 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 pre-tax income or earnings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $100,000 and $1,759,500 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. Net sales 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 (25%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 1 $15,000,000 9,000,000 600,000 $5,400,000 540,000 4,860,000 1,215,000 $3,645,000 100,000 3,545,000 1,458,000 $2,087,000 Year 2 (Forecasted) 600,000 $ $2,539,250
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 20P
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