Consider the following scenario:Cute Camel Woodcraft 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.Cute Camel 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 65% of net sales, and its depreciation and amortization expenses remain constant from year to year.3.The company’s tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).4.In Year 2, Cute Camel expects to pay $100,000 and $1,773,844 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cute Camel, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.Need help with Year 2 values and questions at bottom Net salesLess: Operating costs, except depreciation and amortizationLess: Depreciation and amortization expensesOperating income (or EBIT)Less: Interest expensePre-tax income (or EBT)Less: Taxes (25%)Earnings after taxesLess: Preferred stock dividendsEarnings available to common shareholdersLess: Common stock dividendsContribution to retained earningsYear 1$20,000,00013,000,000800,000$6,200,000620,0005,580,0001,395,000$4,185,000100,0004,085,0001,464,750$2,620,250Given the results of the previous income statement calculations, complete the following statements:Year 2 (Forecasted)$25,000,00016,250,000800,000• Cute Camel's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed fromin Year 2.$7,950,0001,192,5006,757,5001,689,375$5,068,125100,0004,968,1251,773,844$3,194,281• In Year 2, if Cute Camel has 10,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receivein annual dividends.If Cute Camel has 500,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change fromin Year 1 toin Year 2.in Year 1 to• It isto say that Cute Camel's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annualcontribution to retained earnings, $2,620,250 and $3,194,281, respectively. This is becauseof the items reported in the incomestatement involve payments and receipts of cash.

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Answered: Less: Common stock dividends…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 20E

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Consider the following scenario:

Cute Camel Woodcraft 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.	Cute Camel 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 65% of net sales, and its depreciation and amortization expenses remain constant from year to year.
3.	The company’s tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).
4.	In Year 2, Cute Camel expects to pay $100,000 and $1,773,844 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Cute Camel, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.

Need help with Year 2 values and questions at bottom

Net sales
Less: Operating costs, except depreciation and amortization
Less: Depreciation and amortization expenses
Operating income (or EBIT)
Less: Interest expense
Pre-tax income (or EBT)
Less: Taxes (25%)
Earnings after taxes
Less: Preferred stock dividends
Earnings available to common shareholders
Less: Common stock dividends
Contribution to retained earnings
Year 1
$20,000,000
13,000,000
800,000
$6,200,000
620,000
5,580,000
1,395,000
$4,185,000
100,000
4,085,000
1,464,750
$2,620,250
Given the results of the previous income statement calculations, complete the following statements:
Year 2 (Forecasted)
$25,000,000
16,250,000
800,000
• Cute Camel's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from
in Year 2.
$7,950,000
1,192,500
6,757,500
1,689,375
$5,068,125
100,000
4,968,125
1,773,844
$3,194,281
• In Year 2, if Cute Camel has 10,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive
in annual dividends.
If Cute Camel has 500,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from
in Year 1 to
in Year 2.
in Year 1 to
• It is
to say that Cute Camel's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual
contribution to retained earnings, $2,620,250 and $3,194,281, respectively. This is because
of the items reported in the income
statement involve payments and receipts of cash.

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