Business, 12.10.2020 15:01 Ezasha

Consider the following scenario: 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 70.00% 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 $300,000 and $2,306,475 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Round each dollar value to the nearest whole dollar.

Cold Goose Metal Works Inc. Income Statement for Year Ending December 31

Year 1 Year 2 (Forecasted)
Net sales $30,000,000 $
Less: Operating costs, except depreciation and amortization 21,000,000
Less: Depreciation and amortization expenses 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

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Consider the following scenario: Cold Goose Metal Works Inc.’s income statement reports data for it...

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