NEED "A" WORK

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:

              Note: When calculating the 'adjusted inflation' rates please use the method as   outlined in the text.

·        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

4.     Explain the importance of interest rates, and how risk is considered to businesses and economic activity. (300 Words)