Question

16-4: Pro Forma Income Statement.

Austin Grocers recently reported the following 2008 income statement (in millions of dollars):

Sales

$700

Operating costs including depreciation

$500

EBIT

$200

Interest

40

Taxes (40%)

64

Net Income

$ 96

Dividends

$ 32

Addition to retained earnings

$ 64

This year the company is forecasting a 25% increase in sales; and it expects that its year-end operating costs, including depreciation, will equal 70% ofsales. Austin’s tax rate, interest expense, and dividend payout ratio are all expected to remain constant.

a. What is Austin’s projected 2009 net income?

b. What is the expected growth rate in Austin’s dividends?

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