Answer:
Green Caterpillar Garden Supplies Inc.
a) Income Statement for Year Ending December 31
Year 1 Year 2 (Forecasted)
Net sales $30,000,000 $37,500,000
Less: Operating costs 19,500,000 24,375,000
Depreciation &amortization expenses 1,200,000 1,200,000
Operating income (or EBIT) $9,300,000 $11,925,000
Less: Interest expense 930,000 1,788,750
Pre-tax income (or EBT) 8,370,000 10,136,250
Less: Taxes (40%) 3,348,000 4,054,500
Earnings after taxes $5,022,000 $6,081,750
Less: Preferred stock dividends 100,000 100,000
Earnings to common shareholders 4,922,000 5,981,750
Less: Common stock dividends 2,008,800 2,432,700
Contribution to retained earnings $2,913,200 $3,549,050
b) In Year 2, if Green Caterpillar has 5,000 shares of preferred stocks issued and outstanding, then each preferred share should expect to receive _ $20 _ in annual dividends.
-If Green Caterpillars has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from _ $12.31 _ in Year 1 to _ $14.95 _ in Year 2.
-Green Caterpillar's before interest, taxes, depreciation and amortization (EBITDA) value changed from _ $10,500,000 _ in Year 1 to _ $13,125,000_ in Year 2.
-It is _ wrong _ to say that Green Caterpillar'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, $2,913,200 and $3,549,050, respectively. This is because _ not all_ of the items reported in the income statement involve payments and receipts of cash.
Explanation:
a) The preferred dividend per share = Preferred Dividends divided the number of preferred stock shares.
b) The EPS is the Earnings Per Share and is calculated as Net Income to Common Stockholders divided by the number of common stock shares outstanding.
The operating cost figure may not be based on a cash basis. It could be accrued costs. Similarly, the net sales may as well involve sales on credit, which do not involve cash flows.
