A 1 2 Sales growth 3 Current assets/Sales 4 Current liabilities/Sales 5 Costs of goods sold/Sales 6 Depreciation rate B C D Pro Forma Example: ABC Corporation E F G H M N 0 P Q R S T U V W X Y The following relations are given: 10% Current assets Assumed to be 15 percent of end-of-year sales 15% Current liabilities Assumed to be 7 percent of end-of-year sales 7% Depreciation 50% Fixed Assets at Cost 12% 7 Interest rate on debt 9% 9 8 Interest paid on cash and marketable securities Tax rate 8% Debt Cash and Marketable Securities Stock The firm neither issues or repurchases stocks over the life time of the pro formas 12 percent of the average value of assets on the books during the year Sum of NFA plus accumulated depreciation The firm neither repays any existing debt nor borrows any more money over the five year horizon of the pro-formas Average balances of cash and marketable securities are assumed to earn 8% 10 Dividend payout ratio 30% 40% 11 0 1 2 3 4 5 12 13 Year 14 Income statement 15 Sales 16 Costs of goods sold 1,000 (500) 17 Interest payments on debt (32) 18 Interest earned on cash and marketable securities 6 19 Depreciation (120) 20 Profit before tax 354 21 Taxes (107) 22 Profit after tax 247 23 Dividends 24 Retained earnings 25 (99) 148 Question: In this model, assume that the fixed assets at cost follows the following pattern. Fixed assets at cost- 100%*Sales If Sales