Use the Following Information on Dylan Enterprises for Questions 20

question 31

Multiple Choice

Use the following information on Dylan Enterprises for questions 20 - 26.
$\begin{array}{lr}\text { Income statement }\\\text { Net Sales } & \$ 320,000,000 \\\text { Less: Cost of Goods Sold } & \$ 162,000,000\\\text { Gross Profit } & \$ 158,000,000 \\\text { Less: Operating Expenses } & \$ 120,000,000 \\\text { Less: Depreciation } & \$ 11,000,000\\\text { Operating Profit } & \$ 27,000,000 \\\text { Less: Interest Expense } & \$ 8,500,000\\\text { Net Profit Before Taxes } & \$ 18,500,000 \\\text { Less: Taxes } & \$ 6,290,000\\\text { Net Income }&\$12,210,000\\\\\text { Earnings Available to Common } & \$ 12,210,000 \\\text { Dividends Paid (60\% of EAC) } & \$ 7,326,000\\\text { Addition to Retained Earnings }&\$4,884,000\\\\\text { Earnings Per Share }&\$6.11\end{array}$ $\begin{array}{lrrr}&\text { Balance sheet }\\\text { Assets } & \text { Current Year } & \text { Prior Year } & \text { Change } \\\text { Cash } & \$ 1,500,000 & \$ 3,000,000 & (\$ 1,500,000) \\\text { Marketable Securities } & \$ 1,500,000 & \$ 3,200,000 & (\$ 1,700,000) \\\text { Accounts Receivable } & \$ 57,000,000 & \$ 44,000,000 & \$ 13,000,000 \\\text { Inventory } & \$ 106,000,000 & \$ 99,000,000 & \$ 7,000,000 \\\text { Pre-Paid Expenses } & \$ 8,400,000 & \$ 11,000,000 & (\$ 2,600,000) \\\text { Total Current Assets } & \$ 174,400,000 & \$ 160,200,000 & \$ 14,200,000 \\\text { Long-Term Assets } & \$ 148,000,000 & \$ 154,000,000 & (\$ 6,000,000) \\\text { Total Assets }&\$322,400,000&\$314,200,000&\$8,200,000\\\\\text { Liabilities } & \text { Current Year } & \text { Prior Year } & \text { Change } \\\text { Accounts Payable } & \$ 8,716,000 & \$ 6,400,000 & \$ 2,316,000\\\text { Short-Term Debt } & \$ 102,000,000 & \$ 105,000,000 & (\$ 3,000,000) \\ \text { Total Current Liabilities } & \$ 110,716,000 & \$ 111,400,000 & (\$ 684,000) \\\text { Long-Term Debt }(8 \%) & \$ 115,000,000 & \$ 111,000,000 & \$ 4,000,000\\\text { Total Liabilities } & \$ 225,716,000 & \$ 222,400,000 & \$ 3,316,000 \\\text { Common Stock (\$1 Par) } & \$ 2,000,000 & \$ 2,000,000 & \$ 0 \\\text { Paid-In Capital } & \$ 65,000,000 & \$ 65,000,000 & \$ 0 \\\text { Retained Earnings } & \$ 29,684,000 & \$ 24,800,000 & \$ 4,884,000\\\text { Total Equity }&\$96,684,000&\$91,800,000&\$4,884,000\\\text { Total Liabilities and Equity }&\$322,400,000&\$314,200,000&\$8,200,000\end{array}$
-Next year, sales at Dylan are expected to increase by 10%. Also next year, the dividend payout ratio will not change, while gross profit, operating profit, net income, current assets and current liabilities will be the same percentage of sales as the current year. If the firm issues no new common stock, what will be the addition to retained earnings next year?

• A) $1,112,000
• B) $2,746,200
• C) $3,200,000
• D) $4,884,000
• E) $5,372,400

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