Description
1) 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.
2) Calculate the sustainable growth based on the following information:
• D= 30%
• ROE = 25%
3) Calculate a table of interest rates for 5 years based on the following information:
• The pure interest rate is 2%
• Inflation expectations for year 1 = 3%, year 2 =4%, years 3-5 =5%
• The default risk is .1% for year one and increases by .1% 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 .3% for years 3-5
Explanation & Answer
