1. What is the logic of the percentage-of-sales method for constructing pro forma financial statements? On a year-to-year basis, which balance sheet and income statement items do you think will fluctuate most closely with sales, and which items are not likely to vary as directly with sales volume?
2. Why does it make sense to let the firm's cash balance or a short-term liability account serve as the plug figure in pro forma projections? Why not use gross fixed assets as the plug figure?