CSU BBA3301 unit III assessment

Question 1

Explain the weaknesses of using the percentage of sales method in forecasting.

Your response should be at least 250 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.

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25 points

Question 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.

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25 points

Question 3

Calculate the sustainable growth based on the following information:

• Earnings after taxes = $35,000

• Equity = $100,000

• d=22.4%

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25 points

Question 4

Calculate a table of interest rates based on the following information:

The pure interest rate is 1.6%

Inflation expectations for year 1 = 3%, year 2 =3.5%, years 3-5 =5%

The default risk is .1% for year one and increases by .2% 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 .2% for years 3-5