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:

Unemployment Rate

The ratio of the labor force that finds itself without employment but are in the hunt for work.

Recession

A period of significant decline in economic activity across the economy, lasting more than a few months, typically visible in GDP, income, employment, and trade.

Business Cycle

The natural rise and fall of economic activity over time, characterized by periods of expansion, peak, contraction, and trough.

Cost-Push Inflation

Inflation caused by an increase in prices of inputs like labor and raw materials, leading to higher costs for products and services.