You Have Been Given the Following Information for Halle's Holiday

question 75

Multiple Choice

You have been given the following information for Halle's Holiday Store Corp. for the year 2017: Net sales = $50,000,000; Cost of goods sold = $35,000,000; Addition to retained earnings = $2,000,000; Dividends paid to preferred and common stockholders = $3,000,000; Interest expense = $3,000,000. The firm's tax rate is 30 percent. In 2018, net sales are expected to increase by $5 million, cost of goods sold is expected to be 65 percent of net sales, expensed depreciation is expected to be the same as in 2017, interest expense is expected to be $2,500,000, the tax rate is expected to be 30 percent of EBT, and dividends paid to preferred and common stockholders will not change. What is the addition to retained earnings expected in 2018?

• A) $2,000,000
• B) $5,325,000
• C) $8,447,500
• D) $10,304,643

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Definitions:

Deflation

A decrease in the general price level of goods and services over a period, leading to increased purchasing power of money.

Market Risk Premium

The additional return an investor demands for taking on the risk of investing in the stock market over a risk-free rate.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the entire market.

Portfolio P

This term typically represents a specific set of investments held by an individual or organization, potentially including stocks, bonds, and other assets.