Free People Manufacturing Company produces plastic parts for the automotive industry. Here is their Income Statement for 2015

Free People Manufacturing Company

Income Statement for 2015

Sales Revenue $35,500,000

Cost of Goods Sold 12,725,000

Selling, General & Admin Exp 11,200,000

Depreciation Expense 3,200,000

EBIT 8,375,000

Interest Expense 350,000

Taxable Income 8,025,000

Taxes 3,210,000

Net Income 4,815,000

Transfer this income statement to an Excel spreadsheet and begin to prepare a Pro Forma Income statement for 2016 based on the following information:

Sales revenue to increase 5.2%, COGS to increase 4.5%, S,G&A will increase 3.8% and depreciation expense will be $3,255,000. Assume interest expense to be $375,000 and taxes are to be 40% of taxable income. You will now have income statements for 2015 and 2016 for Free PeopleManufacturing.

This is the balance sheet information for Free People Manufacturing Company:

Free People Manufacturing Company

Balance Sheet for year ending December 31, 2015

Assets Liabilities

Cash $2,625,000 Accounts Payable $5,825,000

Accounts Receivable $2,715,000 Other Current Liabilities $3,365,000

Inventories $1,514,000 Total Current Liabilities $9,190,000

Total Current Assets $6,854,000

Long Term Assets Long Term Liabilities

P, P & E $12,745,000 Long Term Debt $1,225,000 Goodwill $1,205,000 Other LT Debt $2,230,000

Intangible Assets $5,275,000 Total LT Liabilities $3,455,000

Total LT Assets $19,225,000 Total Liabilities $12,645,000

Total Assets $26,079,000

Owners Equity

Common Stock $6,425,000

Retained Earnings $7,009,000

Total Owners Equity $13,434,000

Total Liab/OE $26,079,000

Transfer this balance sheet to an Excel spreadsheet and begin to prepare a Pro Forma Balance Sheet for 2016 based on the following information:

Cash will increase to $2,825,000 and accounts receivable will increase by 15%. The inventories will go up 35% and P, P, &E will go up $2,000,000 with an expansion to the plant. Long term debt will increase to $2,000,000 to help finance the plant expansion and add $1,137,150 to other LT debt.. You will now have balance sheets for 2015 and 2016 for Free PeopleManufacturing.

Using the 2015 and 2016 financials for Free People, complete the following show calculations and/or numbers you used to derive your answer:

• Free People wants to take around $400,000 of its cash and invest in marketable securities. They anticipate receiving around $7.5% interest on their investment and would like to have it held for 10 years. What will be the FV of this $400,000 investment?