Cold Goose Metal Works Inc. Income Statement for Year Ending December 31
Year 1 Year 2 (Forecasted)
Net sales $15,000,000 $
Less: Operating costs, except depreciation and amortization 11,250,000
Less: Depreciation and amortization expenses 600,000 600,000
Operating income (or EBIT) $3,150,000 $
Less: Interest expense 315,000
Pre-tax income (or EBT) 2,835,000
Less: Taxes (40%) 1,134,000
Earnings after taxes $1,701,000 $
Less: Preferred stock dividends 300,000
Earnings available to common shareholders 1,401,000
Less: Common stock dividends 765,450
Contribution to retained earnings $635,550 $846,544
Given the results of the previous income statement calculations, complete the following statements:
• In Year 2, if Cold Goose has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends.
• If Cold Goose has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from in Year 1 to in Year 2.
• Cold Goose's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. .
It is to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $635,550 and $846,544, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. 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 75% 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 $938,081 of preferred and common stock dividends, respectively.