Kenney Corporation recently reported the following income statement for 2013 (nu
ID: 2639753 • Letter: K
Question
Kenney Corporation recently reported the following income statement for 2013 (numbers are in millions of dollars):
Sales
$7,000
Total operating costs
3,000
EBIT
$4,000
Interest
200
Earnings before tax (EBT)
$3,800
Taxes (40%)
1,520
Net income available to
common shareholders
$2,280
The company forecasts that its sales will increase by 10 percent in 2014 and its operating costs will increase in proportion to sales. The company
Sales
$7,000
Total operating costs
3,000
EBIT
$4,000
Interest
200
Earnings before tax (EBT)
$3,800
Taxes (40%)
1,520
Net income available to
common shareholders
$2,280
Explanation / Answer
Therefore, $1,260 is the correct answer.
Sales = $7,000 + ($7,000 x 0.10) = $7,700
Total operating costs = $3,000 x ($3,000 x 0.10) = $3,300
Taxes = $4,200 x 0.40 = $1,680
Dividend = $2,520 x .50 = $1,260
Sales (10% increase) $7,700 Less, Total operating costs (10% increase) 3,300 Earnings before interest and tax (EBIT) $4,400 Less, Interest 200 Earnings before tax (EBT) 4,200 Less, Taxes (40%) 1,680 Net income available to common stockholders $2,520 Less, dividend (50%) 1,260 Addition to retained earnings $1,260Related Questions
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