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Question

Income Statement
Revenues$320,000,000
Less: Cost of Goods Sold$162,000,000
Gross Profit$158,000,000
Less: Operating Expenses$120,000,000
Less: Depreciation$11,000,000
Operating Profit$27,000,000
Less: Interest Expense$8,500,000
Net Profit Before Taxes$18,500,000
Less: Taxes$6,290,000
Net Income$12,210,000


Earnings Available to Common$12,210,000
Dividends Paid (60% of EAC)$7,326,000
Addition to Retained Earnings$4,884,000


Earnings Per Share$6.11

Balance Sheet
AssetsCurrent YearPrior YearChange
Cash$1,500,000$3,000,000($1,500,000)
Marketable Securities$1,500,000$3,200,000($1,700,000)
Accounts Receivable$57,000,000$44,000,000$13,000,000
Inventory$106,000,000$99,000,000$7,000,000
Pre-Paid Expenses$8,400,000$11,000,000($2,600,000)
Total Current Assets$174,400,000$160,200,000$14,200,000
Long-Term Assets$148,000,000$154,000,000($6,000,000)
Total Assets$322,400,000$314,200,000$8,200,000




LiabilitiesCurrent YearPrior YearChange
Accounts Payable$8,716,000$6,400,000$2,316,000
Short-Term Debt$102,000,000$105,000,000($3,000,000)
Total Current Liabilities$110,716,000$111,400,000($684,000)
Long-Term Debt (8%)$115,000,000$111,000,000$4,000,000
Total Liabilities$225,716,000$222,400,000$3,316,000
Common Stock ($1 Par)$2,000,000$2,000,000$0
Paid-In Capital$65,000,000$65,000,000$0
Retained Earnings$29,684,000$24,800,000$4,884,000
Total Equity$96,684,000$91,800,000$4,884,000
Total Liabilities and Equity$322,400,000$314,200,000$8,200,000
Next year, sales at Dylan are expected to increase by 10%. Also next year, the dividend payout ratio will not change, while gross profit, operating profit, net income, current assets and current liabilities will be the same percentage of sales as the current year. If the firm issues no new common stock, what will be the addition to retained earnings next year?
a. $1,112,000
b. $2,746,200
c. $3,200,000
d. $4,884,000
e. $5,372,400

Answer

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