## Question

# 1. Define each part of a financial plan and discuss the importance of these components in managerial decision making. 2. Construct a pro forma income

1. Define each part of a financial plan and discuss the importance of these components in managerial decision making.

2. 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: 30%

Fixed Costs: $125,000

Income taxes: 15%

Interest Expense: $200,000

In year 2, Price per unit increases to $11.50, and unit of sales increases by 5%, all other assumptions remain the same.

3. Calculate the sustainable growth based on the following information:

D= 30%

ROE = 25%

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

## Step by Step Solution

There are 3 Steps involved in it

### Step: 1

1 STEP 1 DETERMINE YOUR CURRENT FINANCIAL SITUATION In this step the current financial situation of the income living expenses debts and savings will ...### Get Instant Access to Expert-Tailored Solutions

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### Step: 2

### Step: 3

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