Unit 3 Math

Question 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.

Question 2

 

Calculate the sustainable growth based on the following information:

D= 30%

ROE = 25%

Question 4

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