1. Use the balance sheet and income statement provided to prepare a pro forma balance sheet and income statement for the next 3 years, 2016 to 2018. Make the following assumptions in preparing your financial statements:

The projected growth rate for the next 3 years is 10%

The firm is currently operating at 80% capacity. In 2018, the firm will need to increase its capacity to continue growth. The firm has plans in place to expand its factory and increase capacity by 25%. This will require the firm to increase fixed assets by $750,000. Increasing capacity by only 10% to cover growth for just 2018 is not an option at this time. Depreciation will be constant for the existing fixed assets for the next three years. The new assets will be depreciated straight line over their 10 year expected lifespan.

The firm will be maintaining its current dividend payout policy and investing its remaining net income into the firm to fuel growth as retained earnings. Any additional external financing needed will be made in the long term debt account.

The firm is borrowing long term debt at a 8% interest rate. Interest rates are not expected to change over for this firm over the next 3 years.

Notes Payable will be constant over the next 3 years and pay 5% annual interest.

The corporate tax rate for this firm is 34%.

MSU FI-311 Corporation
2015 Balance Sheets (in $1000) ($ millions)
	2015		2015
Current assets		Current liabilities
Cash	$150	Accounts payable	$300
Accounts receivable	$500	Notes payable	$200
Inventory	$1,000	Total	$500
Total	$1,650	Long-term debt	$1,800
Fixed assets		Owners' equity
Net plant and equipment	$2,280	Common Stock and Paid in Surplus
			$600
		Retained earnings	$1,030
		Total	$1,630
Total assets	$3,930	Total liabilities and equity	$3,930
MSU FI-311 Corporation
2015 Income Statement (in $1000)
			2015
Sales			$2,100
Cost of goods sold			$1,344
Depreciation			$250
Earnings before interest and taxes			$506
Interest paid			$154
Taxable income			$352
Taxes			$120
Net income			$232
Dividends			$116
Additions to retained earnings			$116