This model used new borrowing as the plug variable by setting total liabilities and owners$$ equity equal to total assets. Next, the ending amount of owners$$ equity is calculated as the beginning amount plus the additions to retained earnings. The difference between these amounts is the total debt necessary to balance the balance sheet.

The main difference between this model and the percentage of sales approach is that we have separated out depreciation and interest. Depreciation is calculated as a percentage of beginning fixed assets, and the amount of interest depends on the amount of debt. However, since depreciation and interest now do not necessarily vary directly with sales, the profit margin is no longer constant.

The model parameters can be based on a percentage of sales model, or they can be determined by other means the company deems appropriate. For example, they might be based on average values for the last several years, industry standards, subjective estimates, or even company targets. Alternatively, sophisticated statistical techniques can be used to estimate them.

Lotus Company $-$ Proforma Analysis Spreadsheet

a$.(40$ Points$)$ Calculate the following ratios and parameters needed for financial planning

Cost percentage

Depreciation percentage

Interest rate

Tax rate

Payout ratio

Fixed assets$/$Total assets

Profit Margin $($Initial$)$

Capital intensity ratio

b$.(40$ Points$)$ Construct the proforma financial statements $($i$.$e$.,$ income statement and balance sheet$)$ using the parameters you calculated. Your

proforma balance sheet should balance.

Kindly explain to me when should i take into consideration the growtha rate and the tax rate while preparing the financial satements and if this will affect the ratio.Appreciated.