Search this course Ch 03: Assignment Financial Statements, Cash Flow, and Taxes Consider the following scenario Cold Goose Metal Works Inc.'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. Cold Goose 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 75% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cold Goose expects to pay $300,000 and $1,172,601 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Cold Goose Metal Works Inc. Income Statement for Year Ending December 11 Complete the Year 2 Income statement data for Cold Goose, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Cold Goose Metal Works Inc Income Statement for Year Ending December 31 Year 1 Year 2 (Forecasted) Net sales $15,000,000 11,250,000 600,000 600.000 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 $3,150,000 315,000 2,835,000 708,750 52,126,250 300,000 1,826,250 Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings 956,813 $869,437 $1,133,180 MMM 1,826,250 Earnings available to common shareholders Less Common stock dividends Contribution to retained earnings 956,813 $869,437 $1,133,180 Given the results of the previous Income statement calculations, complete the following statements: in Year 1 to In Year 2. If Cold Goose has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends If Cold Goose has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from in Year 2 . Cold Goose's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 2 It is to say that Cold Goose's net and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, 5869,437 and $1,133,100, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. In Year 1 to Grade It Now Save & Continue Continue without saving