Presented below is the consolidated statement of earnings for Mann & Miller, Inc.

Mann & Miller, Inc.
Consolidated Statement of Earnings
($ millions)		2015	2014	2013
Sales of customers		$36,298	$32,317	$29,172
Cost of goods sold		10,447	9,581	8,957
Gross profit		25,851	22,736	20,215
Selling, marketing & administrative expense		12,216	11,260	10,495
Research expense		3,957	3,591	3,105
Purchased in-process research & development		189	105	66
Interest income		(256)	(456)	(429)
Interest expense, net of portion capitalized		160	153	204
Other (income) expense, net		294	185	(94)
		16,560	14,838	13,347
Earnings before provision for income taxes		9,291	7,898	6,868
Provision for income taxes		2,694	2,230	1,915
Net earnings		$ 6,597	$ 5,668	$ 4,953
Basic net earnings per share		$2.20	$1.87	$1.65
Diluted net earnings per share		$2.16	$1.84	$1.61

Required
Using the Mann & Miller Inc. (M&M) consolidated statement of earnings as your base year, prepare pro forma income statements for M&M for 2016 and 2017. Relevant assumptions that you should use include:

• Sales growth is 10 percent per year.
• The gross profit margin is 65 percent.
• The effective income tax rate is 29 percent.
• Selling, marketing & administrative expenses, research expenses, and other income and expenses net all vary as a function of sales.
• Purchased in-process R&D and interest income remain constant at the 2015 level.
• Interest expense is six percent of the beginning balance of the long-term debt.
• Long-term debt at the end of 2015 is $2,750 and increases by five percent each year.

Instructions

Mann & Miller, Inc.
Proforma Financial Statements
(in millions)	2016		2017
Sales to customers
Cost of sales
Gross profit
Selling & administrative
Research
In-process R & D
Interest income
Interest expense
Other (income) expense, net
Income before taxes
Income taxes
Net income

• 1. Round answers to the nearest whole number.
  2. Use rounded Sales figures for subsequent calculations.
  3. For selling, marketing & administrative expenses, research expenses, and other income and expenses computations - use (2015 expense / 2015 sales) as your factor for both 2016 and 2017 computations. Do not round until your final answer.
  4. Use a negative sign with interest income answers.

Mann & Miller, Inc.
Proforma Financial Statements
(in millions)	2016		2017
Sales to customers
Cost of sales
Gross profit
Selling & administrative
Research
In-process R & D
Interest income
Interest expense
Other (income) expense, net
Income before taxes
Income taxes
Net income