E18.2. Income Statements and Risk (Medium) The statements below are for two firms in the same line of business (in millions of dollars). FIRM A Sales Expenses $1,073 Labor and materials $536 Administration 121 Depreciation 214 Selling expenses 84 Interest expense Income before taxes Income taxes Income after taxes $ 59 FIRM B Sales Expenses $1,129 Labor and materials $793 Administration 42 Depreciation 79 Seling expenses 91 1.005 124 Interest expense Income before taxes 120 Income taxes 43 Income after taxes 2. Analyze the risk drivers in these income statements. Which firm looks more risky for stockholders? Why?

b. On the basis of the relationships in these income statements, develop pro forma income statements under the following scenarios: (1) Sales drop to $532 million for both firms. (2) Sales increase to $2,140 million for both firms. What does this analysis tell you?