Karen Lamont is in the process of starting a new business ans wants to forecast the first years income statement and balance sheet. She has made a number of assumptions

1 million in sales the first year

operating and gross profit margins will be 20 percent and 50 percent.

accounts recivable 12%

invetory as sales 15%

accounts payable 7%

accruals 5%

bank loaned her 300,000 and 100,000 is short term debt and 200,000 is long term debt. Both interest rates are 8%

firms tax rate is 30%

Lamont will need to purchase 350,000 in plant/equipment and she will peovide any other financing needed

QUESTIONS ARE:

1. Based on lamonts assumptions, prepare a pro forma income statement and balance sheet?

2. If her estimates are correct, what will be the firms current ratio and debt ratio? Explain the meaning iof these ratios?