The main difference between this model and the percentage of sales approach is that we have separated out depreciation and interest. Depreciation is calculated as a percentage of beginning fixed assets, and the amount of interest depends on the amount of debt. However, since depreciation and interest now do not necessarily vary directly with sales, the profit margin is no longer constant. The model parameters can be based on a percentage of sales model, or they can be determined by other The parameter estimates used in this calculation of proforma financial statements are: Cost percentage Costs Sales Depreciation rate Depreciation/Beginning fixed assets Interest rate Interest paid/Total debt Effective tax rate Taxes/Taxable income Payout ratio Dividends/Net income Capital intensity ratio - Fixed assets/Sales The Lotus Company is preparing its pro forma financial statements for the next year using this model. The Sales growth Tax rate 21% Lotus Company - Proforma Analysis Spreadsheet a. (40 Points) Calculate the following ratios and parameters needed for financial planning: Cost percentage Depreciation percentage Interest rate Tax rate Payout ratio Fixed assets/Total assets Profit Margin (Initial) Capital intensity ratio (40 Points) Construct the proforma financial statements (ie., income statement and balance sheet) using the parameters you calculated. Your proforma balance sheet should balance. Lotus Company Income Statement Sales $ 880,000.00 Costs 465,000.00 Depreciation 112,500.00 Interest 88,000.00 Taxable income 214,500.00 Taxes 45,045.00 Net income 169,455.00 Dividends $ 30,000.00 Additions to retained earnings $ 139,455.00 Balance Sheet Assets Liabilities and Equity Current assets $240,000.00 Total debt Net fixed assets $1,350,000.00 Owners' equity Total assets $1,590,000.00 Total debt and equity Note: Beginning Fixed Assets - $1,125,000 Sales $880,000.00 $710,000.00 $1,590,000.00 Costs Depreciation Interest Taxable income Taxes Net income Dividends Additions to retained earnings a. (40 Points) Calculate the necessary ratios and parameters needed for financial planning in preparation for b. (40 Points) Construct the proforma financial statements (.e., income statement and balance sheet) using Pro forma Income Statement Assets Current assets Net fixed assets Total assets Lotus Company Pro forma Balance Sheet Total debt Liabilities and Equity 2 Owners' equity Total debt and equity