Question

Austin Grocers recently reported the following 2016 income statement (in millions of dollars):

	Sales	$700
	Operating costs including depreciation	500
	EBIT	$200
	Interest	40
	EBT	$160
	Taxes (40%)	64
	Net income	$96
	Dividends	$32
	Addition to retained earnings	$64

For the coming year, the company is forecasting a 20% increase in sales, and it expects that its year-end operating costs, including depreciation, will equal 75% of sales. Austin's tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

1. What is Austin's projected 2017 net income? Enter your answer in millions. For example, an answer of $13,000,000 should be entered as 13. Round your answer to two decimal places.
   $ million
2. 
   
3. What is the expected growth rate in Austin's dividends? Do not round your intermediate calculations. Round your answer to two decimal places.
   %

Answer 1

	Presently
	Interest as a % of EBIT	40/200	20.00%
	Dividiend payout as a % of Net Income	32/96	33.33%
	Tax	given	40%
	Using this in calculation of projected income for 2017
		Projected income statement fo 2017
	Adjustment	Particulars	Amount	Working
		Sales	840.00	(700*1.2)
	Less	operating cost	630.00	(75%*840)
		EBIT	210.00
	Less	Interest	42.00	(210*20%)
		EBT	168.00
	Less	Tax	67.20	(168*40%)
		Net income	100.80
	Less	dividend	33.60	(100.8*33.33%)
		Retained earnings	67.20
Ans a	So Austins projected net income is $ 100.8 million
Ans c	Growth rate in dividend = ((33.6-32)/32)		5.00%
Note: Question b is not given