Fuzzy Button Clothing Company\'s income statement reports data for its first yea

Question

Fuzzy Button Clothing Company'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. Fuzzy Button 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 80% 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, Fuzzy Button expects to pay $150,000 and $267,750 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.

Explanation / Answer

653250

preferred dividend per share = prefered dividend paid/ number of prefered dividens

EPS = Earnings available to common shareholders/shares outstanding

Ans 1) $15 in annual dividends.

Ans 2) $3.57 in year 1 to $4.605 in year 2.

Ans 3) $2000000 in year 1 to $2500000 in year 2.

Ans 4) Incorrect , not all

Year 2 Net sales 12500000 Less Operating expense 10000000 Less Depreciation 400000 EBIT 2100000 Less Interest 315000 EBT 1785000 Less Taxes 714000 EAT 1071000 Less Preferred Stock Dividends 150000 Earning available to common stockholders 921000 Less Common Stock Dividends 267750 Retained Earnings

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