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Homework answers / question archive / Consider the following scenario:  Cute Camel Woodcraft Company's income statement reports data for its first year of operation

Consider the following scenario:  Cute Camel Woodcraft Company's income statement reports data for its first year of operation

Finance

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 60% 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, Cute Camel expects to pay $300,000 and $2,111,400 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. 
Cute Camel Woodcraft CompanyIncome Statement for Year Ending December 31 Year 1 Year 2 (Forecasted) Net sales $20,000,000 Less: Operating costs, except depreciation and amortization 12,000,000 Less: Depreciation and amortization expenses 800,000 800,000 Operating income (or EBIT) $7,200,000 Less: Interest expense 720,000 Pre-tax income (or EBT) $6,480,000 Less: Taxes (40%) 2,592,000 Earnings after taxes $3,888,000 $ Less: Preferred stock dividends 300,000 Earnings available to common shareholders $3,588,000 $ Less: Common stock dividends 1,749,600 Contribution to retained earnings $1,838,400 $2,280,600 
 

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