Construct a pro forma income statement for the first year and second year for the following assumptions:
Units of Sales in Year 1: 100,000.
Price per Unit: $10.
Variable cost per unit: 30%.
Fixed Costs: $120,000.
Income taxes: 15%.
Interest Expense: $200,000.
In year 2, Price per unit increases to $11.50, and unit of sales increases by 3%, all other assumptions remain the same. .
Question 6
Calculate the sustainable growth based on the following information:
Earnings after taxes = $35,000
Equity = $100,000
d=22.4%
Question 7
Calculate a table of interest rates based on the following information:
The pure interest rate is 1.6%.
Inflation expectations for year 1 = 3%, year 2 =3.5%, years 3-5 =5%.
The default risk is .1% for year one and increases by .2% over each year.
Liquidity premium is 0 for year 1 and increases by .2% each year.
Maturity risk premium is 0 for years 1 and 2 and .2% for years 3-5.