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:
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
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