PRO FORMA INCOME STATEMENT Austin Grocers recently reported the following 2016 i

Question

PRO FORMA INCOME STATEMENT

Austin Grocers recently reported the following 2016 income statement (in millions of dollars):

For the coming year, the company is forecasting a 15% increase in sales, and it expects that its year-end operating costs, including depreciation, will equal 65% 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.
% _______________

Sales $700 Operating costs including depreciation 500 EBIT $200 Interest 40 EBT $160 Taxes (40%) 64 Net income $96 Dividends $32 Addition to retained earnings $64

Explanation / Answer

From the below excel sheet we detremine that
Net Income = 145.05 million
Expected growth in dividend = (Dividend 2017 - Dividend 2016)/ Dividend 2016 = (48.35- 32)/32 = 51.09%

2016 2017 Sales $700 805.00 Sales increase of 15% so 700*(1+15%) Operating costs including depreciation 500 523.25 Cost including depreciation = 65% * 805 EBIT $200 281.75 Sales - expenses Interest 40 40.00 No change in Interest EBT $160 241.75 EBIT-Interest Taxes (40%) 64 96.70 Taxes = 40%* EBT Net income $96 145.05 Net income = EBT-Taxes Dividends $32 48.35 for 2016 Pay out ratio =
Dividends/Net income = 1/3 so for 2017 dividen =(145.05* 1/3) Addition to retained earnings $64 96.70 Net income* 2/3

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