Question

The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm'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 (GAAP) that match the firm'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 financial statements and reports to evaluate the company's financial performance and condition. 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% 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.

Answer 1

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ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr General Wrap Text Merge Merge & Center Center SF $ - % % 4:0 .00 8.9 Insert Delete Format Cell Styles Calibri E Copy Paste Format Painter B I Clipboard AV811 - 2 AR AS Conditional Format Formatting as Table Styles -11AA = = = U - D A Font for AT Find & Select AutoSum - A Fill Sort & 2 Clear Filter Editing Alignment Number Cells AU - AV AW AX AY AZ BA 811 LESS LESS EBIT LESS 812 813 814 815 816 817 818 819 820 821 822 823 824 825 826 YEAR 1 YEAR 2 (FORECASTED) NET SALES 30000000 37500000 30000000*(1.25) OPERATING COST 21000000 26250000 70% OF SALES DEPRECIATION & AMORT EXP 1200000 1200000 7800000 10050000 INTEREST 780000 1507500 7020000 8542500 TAX 2808000 3417000 4212000 5125500 PREFERRED STOCK DIVIDEND 200000 200000 EARNINGS FOR COMMON SHAREHOLDERS 4012000 4925500 COMMON STOCK DIVIDENDS 1263600 1537650 CONTRIBUTION TO RETAINED EARNINGS 2748400 3387850 EBT LESS EAT LESS LESS 827 828 829 NO OF SHARES EPS 400000 10.03 400000 12.31 (EARNINGS/NO OF SHARES] FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont 0 CASH BUDGET ferences: EX24 DIFF ANALYSIS BO ovel < 130% Rea _ 0 + . . . m * s 0 ENG 14:51 03-11-2019

- O WOULD File Home Insert In Year 2 - Microsoft Word (Product Activation Failed) View Page Layout References Mailings Review Cut 21 1 Ea Copy Paste Format Painter Clipboard Calibri (Body) - 14 AA Aa A 5-15 BI Uabe X, X Aaby - A ETS Font Paragraph АавьСcІ АавьСcІ АаВЫС Аавьсс Аав Аавьсс. АавьСcl | 1 Normal 1 No Spaci... Heading 1 Heading 2 Title Subtitle Subtle Em... Change Styles Find ac Replace hos Select Editing Styles X I .1.2. 3. 4. 5 .6. 7. 8. 9. 10. 11 . 12. 13 . 14 . 15 . 16. 1 17 1 18 1 19 1 20 1 21 · 22 · 1 · 23 · 24 TM II . Ti • In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive 200000/5000 = $40 in annual dividends. i Zi • If Cold Goose has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from 4012000/400000 = $10.03 in Year 1 to 4925500/400000 = $12.31 in Year 2. . E . : S • Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from 9,000,000 in Year 1 to 11,250,000 in Year 2. 9 • It is Not Correct 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. This is because not all of the item reported in the income statement involve payments and receipts of cash. 2 ! 8 . b . ' l ds: 2,728 English (India) EVE 3 140% 0 B A .lll + TO 03-11-2019