#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:

• Earnings after taxes = $35,000

• Equity = $100,000

• d=22.4%

# 3. Calculate a table of interest rates for 5 years 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
- Maturity risk is 0 for years 1 and 2 and .2% for years 3-5

Subject | Business |

Due By (Pacific Time) | 10/27/2015 08:00 pm |

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