Question

3. Income statement 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 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cold Goose expects to pay $200,000 and $1,922,063 of preferred and common stock dividends, respectively.

Answer 1

rate positively ..

			Year 1	Year 2
a	Net sales		30000000	37,500,000
b	Less: Operating cost, except dep and amortization		21000000	26,250,000
c	Less: Depreciation and amortization		1200000	1200000
d	EBIT		7800000	10050000
e	Less: Interest		780000	1,507,500
f	EBT		7020000	8542500
g	Less Tax @ 25%		1755000	2135625
h	Earning after tax		5265000	6406875
i	Less: Preferred dividend		200000	200000
j	Earning available to common share		5065000	6206875
k	Less: Common dividend		1579500	1,922,063
l	contribution to retained earning		3485500	4284812
ans 1	Preferred share annual dividend =	$      40.00
	100000/5000
ans 2			Year 1	Year 2
i	Earning available to common share		5065000	6206875
ii	Number of share		400000	400000
iii=i/ii	EPS		12.66	15.52
	EPS change from 12.66 in year 1 to 15.52 in year 2
ans 3			Year 1	Year 2
i	EBIT		7,800,000	10,050,000
ii	Depreciation		1200000	1200000
iii=i+ii	EBITDA		9,000,000	11,250,000
	EBITDA chaged from 9000000 in year 1 to 1125000 in year 2
ans 4
	Its is INCORRECT to say….. This is because NOT all of the items reported in the income…