Karney Corporation reported the following income statement for the most recent y

Question

Karney Corporation reported the following income statement for the most recent year (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 the next year and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 40 percent of its net income as dividends, the other 60 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for the

Explanation / Answer

The forecasted addition to retained earnings for the next year $1512 Mn

Karney Corporation Income Statement Most recent Year Forcasted Year $Mn $Mn Sales 7000 7700 Less Operaring Cost -3000 -3300 EBIT 4000 4400 Less Interest -200 -200 EBT 3800 4200 Less Tax @40% -1520 -1680 Net Income 2280 2520 Less Dividend paid 40% of NI -1008 Retained Earnings 1512

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