Use the information & assumptions below to:

1. Generate a Pro forma Income Statement for next year
2. Generate a Pro forma Balance Sheet for the current year end AND projected next year end

Information & Assumptions for Company Inc.:

• Sales this past year were: $1,000,000.
• Sales are expected to grow 10% next year.
• Cost of Goods Sold have historically run at 68% of sales. No change expected.
• Selling, General & Administrative Expenses have historically run at 12% of sales. No change expected.
• Depreciation Expense - Fixed assets are depreciated over a ten-year useful life.
• Interest expense is paid at an average rate of 8% on current long-term interest-bearing debt of $250,000.
• Last years tax rate was 38%, but under the new tax plan next years tax rate is expected to be 22%.
• Dividend payout ratio is assumed to stay at 35%.
• Minimum cash balance is $25,000 (balance unchanged from past fiscal year end)
• Beginning receivables is $70,000.
• Beginning inventory is $50,000.
• Beginning fixed assets stand at $380,000.
• New fixed assets expected to be acquired total $180,000.
• Beginning payables is $20,000.
• Beginning equity is $255,000.
• Inventory Days has historically run at 44.
• Receivable Days Outstanding has historically run at 28.
• Payable Days has historically run at 20.

3. Based upon your pro forma income statement and balance sheet, calculate the sustainable growth rate for Inc. Interpret what information is provided by this metric.

4. Sustainable growth rate is often used by bankers and other external analysts to assess a companys creditworthiness. Explain how a banker might practically use this information (namely the sustainable growth rate).

5. Sensitivity analysis is What If analysis. If you were the owner of Inc. why might you perform a sensitivity analysis? Explain.