le Question 4 fof velue 10.00 polints You have been given the following informat

Question

le Question 4 fof velue 10.00 polints You have been given the following information for Kellygirs Athletic Wear Corp. for the year 2015: a. Net sales= $38,500,000. b. Cost of goods sold- $22.140.000. c. Other operating expenses $5.800,000. d. Addition to retained eamings- $1.202.500. e. Dividends paid to preferred and common stockholders S 1.923.000. f. Interest expense S 1.810.000. g. The firm's tax rate is 30 percent. h. In 2016, net sales are expected to increase by $8.50 million. i. Cost of goods sold is expected to be 80 percent of net sales j. Depreciation and other operating expenses are expected to be the same as in 2015 k. Interest expense is expected to be $2.085.000 1. The tax rate is expected to be 30 percent of EBT m. Dividends paid to preferred and common stockholders will not change Calculate the addition to retained esrnings expected in 2010. (Enter your answer in dollars, not millions.) Addition to retained esrnings References eBook & Resources Worksheet

Explanation / Answer

Calculation of Depreciation:

Net Income after Tax for the year 2015= $12,02,500 + $19,23,000= $31,25,500

Tax Rate= 30%

Earning Before Tax (EBT) = Net Income after Tax /(1-tax rate)

Year : 2016

Calculation of addition to retained earnings for the year 2016:

Interest Expense= $20,85,000

EBT= EBIT- Interest Expense

Solution: Year 2015:-

Calculation of Depreciation:

Net Income after Tax for the year 2015= Addition to retained earnings + Dividend Paid

Net Income after Tax for the year 2015= $12,02,500 + $19,23,000= $31,25,500

Tax Rate= 30%

Earning Before Tax (EBT) = Net Income after Tax /(1-tax rate)

Earning Before Tax (EBT) = 31,25,500/(1-0.30)= $44,65,000 Earning before interest and tax (EBIT) = EBT+ Interest Expenses Earning before interest and tax (EBIT) = $44,65,000+$18,10,000= $62,75,000 EBIT= Net Sales - COGS - Other Operating Expense - Depreciation $62,75,000 = $3,85,00,000-$2,21,40,000- $56,00,000-Depreciation Depreciation = $3,85,00,000-$2,21,40,000-$56,00,000-$62,75,000 Depreciation = $44,85,000

Year : 2016

Calculation of addition to retained earnings for the year 2016:

Net Sales = $3,85,00,000+ $95,00,000= $4,80,00,000 COGS= $4,80,00,000*60%= $2,88,00,000 Depreciation = $44,85,000 Other Operating Expense= $56,00,000 EBIT= Net Sales- COGS- Other Operating Expenses- Depreciation EBIT= $4,80,00,000 - $2,88,00,000 - $56,00,000 - $44,85,000 EBIT = $91,15,000

Interest Expense= $20,85,000

EBT= EBIT- Interest Expense

EBT= $91,15,000- $20,85,000= $70,30,000 Tax Rate = 30% Earning after Tax (EAT) = EBT(1-0.30) Earning after Tax (EAT) = 70,30,000(1-0.30)= $49,21,000 Dividend Paid to preferred and common stockholders= $19,23,000 Addition to retained earnings for 2016= Earning after Tax - Dividend Paid Addition to retained earnings for 2016= $49,21,000 - $19,23,000= $29,98,000

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