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1. Green Caterpillar is able to achieve this level of increased sales, but its interest...

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1. Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBM). 2. The company's operating costs (excluding depreciation and amortization) remain at 20.00% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $100,000 and $1,195,950 of preferred and common stock dividends, respectively, Year 2 (Forecasted) Year 1 $20,000,000 (14,000,000) (800,000) (800,000) Net sales Fixed operating costs, except depreciation and amortization Depreciation and amortization expenses Net operating income (or EBIT) Interest Earnings before taxes (or EBT) Taxes (40%) $5,200,000 (520,000) $4,680,000 (1,872,000) $2,808,000 (100,000) Net Income Preferred dividends Earnings available to common stockholders (EAC) Common dividends $2,708,000 (982,800) Addition to retained earnings $2,121,050 $1,725,200

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