Question

4. Problem 16.04 Click here to read the eBook: Forecasted Financial Statements PRO FORMA INCOME STATEMENT Austin Grocers recently reported the following 2016 income statement (in millions of dollars): $700 Sales Operating costs including depreciation 500 ЕВT $200 Interest 40 $160 ЕВT Taxes (40%) 64 Net income $96 Dividends $32 Addition to retained earnings $64 For the coming year, the company is forecasting a 30% increase in sales, and it expects that its year-end operating costs, including depreciation, will equal 75% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant a. What is Austin's projected 2017 net income? Enter your answer in millions. For example, an answer of $13,000,000 should be entered as 13. Round your answer to two decimal places. million b. What is the expected growth rate in Austin's dividends? Do not round your intermediate calculations. Round your answer to two decimal places Save & Continue Grade It Now

Answer 1

a: Net Income= $112.5 million

Project Income Statement ($ million)

Sales= 700*130%	910
Less: costs 75%	682.5
EBIT	227.5
Interest	40
EBT	187.5
Less: Tax	75
net Income	112.5
Dividend= 112.5*32/96	37.5
Addition to Retained earnings	75

b: Growth rate in dividend = (37.5-32)/32 = 17.18%