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Proforma Income Statement

Assumptions for status quo pro forma.
â?¢ Sales growth 1.5%
â?¢ Use %-of-Sales for COGS, GA&S Expense, Depreciation, and short-term assets and liabilities.
â?¢ Dividends will be the same dollar amount as 2009.
â?¢ Tax rate is 32%
â?¢ $500,000 of long-term debt will be repaid during 2010
â?¢ Short-term debt (Bank Loan) is at 7.5% and the long-term debt is at 9%. Compute Interest Expense by assuming that any changes to these balances occur half-way through the year.

Assumptions for new credit policy pro forma.
â?¢ Sales growth 6%
â?¢ Bad debt expense will be 5% of new Sales (over the 1.5% planned growth)
â?¢ Use %-of-Sales for COGS, GA&S Expense, Depreciation, and short-term assets and liabilities.
â?¢ Dividends will be the same dollar amount as 2009.
â?¢ Tax rate is 32%
â?¢ $500,000 of long-term debt will be repaid during 2010
â?¢ Short-term debt (Bank Loan) is at 7.5% and the long-term debt is at 9%. Compute Interest Expense by assuming that any changes to these balances occur half-way through the year.

All else will be a percentage of sales. Calculate for 2 years out.

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Solution Summary

The solution explains how to prepare a proforma income statement given the assumptions.

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