Y7

Here's a basic exercise that will help you understand what's going on in the modeling of financial statements. Replicate the model in section 5.1. That is, enter the correct formulas for the cells and see that you get the same results as the book. (This turns out to be more of an exercise in accounting than in finance. If you're like many financial modelers, you'll see that there are some aspects of accounting that you've forgotten!) 2. The model of section 5.1 includes costs of goods sold but not selling, general, and admin- istrative (SG&A) expenses. Suppose that the firm has $200 of these expenses each year, irrespective of the level of sales. a. Change the model to accommodate this new assumption. Show the resulting profit and loss statements, balance sheets, the free cash flows, and the valuation. b. Do a data table in which you show the sensitivity of the equity value to the level of SG&A. Let SG&A vary from $0 per year to $600 per year