I. INCOME STATEMENT:

2010 Forecast

2009ForecastFeed-

ActualBasis1st PassBack2nd Pass

Sales$2,000.00x 1.25$2,500.00$2,500.00

Less: Var. costs (60%)(1,200.00)x 1.25(1,500.00)1,500.00

Fixed costs(700.00)x 1.25(875.00)(875.00)

EBIT$ 100.00$ 125.00$ 125.00

Interest (8%)(16.00)(16.00)+14.34^a(30.34)

EBT$84.00$ 109.00$94.66

Taxes (40%)(33.60)(43.60)(37.86)

Net income$50.40$65.40$56.80

Dividends (30%)$15.12$19.62$17.04

RE addition$35.28$45.78$39.76

^aExternal funds are financed with 50 percent notes payables and 50percent long-term debt, so the change in interest expense equals 0.08($89.61) + 0.08($89.61) = $7.17 + $7.17 = $14.34.

Please tell me how did they get numbers 14.34 and 89.61 to calculate interest rate?