Finance
Paper instructions:
1. Construct a pro forma income statement for the first year and second year for the following assumptions:
•Units of Sales in Year 1: 110,000.
•Price per Unit: $11.
•Variable cost per unit: 25%.
•Fixed Costs: $129,000.
•Income taxes: 20%.
•Interest Expense: $170,000.
•In year 2, Price per unit increases to $13.50, and unit of sales increases by 4%, all other assumptions remain
the same.
2. Calculate a table of interest rates based on the following information:
•The pure interest rate is 2.5%.
•Inflation expectations for year 1 = 2%, 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 .15% each year