# Interest Costs Assignment

1. Fuzzy Button 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&#39;s operating costs (excluding depreciation and amortization) remain at 60.00% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company&#39;s tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT) 4.

In Year 2, Fuzzy Button expects to pay \$200,000 and \$1,055,700 of preferred and common stock dividends, respectively Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar. Fuzzy Button Clothing Company Income Statement for Year Ending December 31 Year 2 (Forecasted) Year 1 Net sales \$15,000,000 Less: Operating costs, except depreciation and amortization 9,000,000 Less: Depreciation and amortization expenses 600,000 600,000 \$5,400,000 Operating income (or IT) Less: Interest expense 540,000 Pre-tax income (or EBT) \$4,860,000 Less: Taxes (40%) 1,944,000 Earnings after taxes \$2,916,000 Less: Preferred stock dividends 200,000 Earnings available to common shareholders \$2,716,000 Less: Common stock dividends 874,800 Contribution to retained earnings \$1,660,300 \$2,263,300 Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Fuzzy Button has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Fuzzy Button has 400,000 shares of common stock issued and outstanding, then the firm&#39;s earnings per share (EPS) is expected to change from in Year 1 to in Year 2 Fuzzy Button&#39;s before interest, taxes, depreciation, and amortization (EBITDA) value changed from in Year 1 to in It is to say that Fuzzy Button&#39;s net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company&#39;s annual of the item reported in the income contribution to retained earnings, \$1,660,300 and \$2,263,300, respectively. This is because the statement involves payments and receipts of cash. .

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