Problem 1. Prepare a pro forma income statement and balance sheet for Webb Enterprises (see balance sheet and income statement below), where revenues are expected to grow by 20% in 2016. Make the following assumptions in making your forecast of the firm's balance sheet for 2016:

The income statement expenses are a constant percentage of revenues except for interest, which remains equal in dollar amount to the 2015 level, and taxes, which equal 40% of earnings before taxes.

The cash and marketable securities balance remains equal to $500, and the remaining current assets accounts increase in proportion to revenues for 2015.

Net property, plant, and equipment increase in proportion to the increase in revenues and depreciation expenses for 2016 is $2,000.

Accounts payable increases in proportion to firm revenues.

Owner's equity increases by the amount of firm net income for 2011 (no cash dividends are paid).

Long-term debt remains unchanged, and short-term debt changes in an amount that balances the balance sheet.

Given: Problem 1
Balance Sheet	2015
Cash and marketable securities	$500	1.52%
Accounts receivable	$6,000	18.18%
Inventories	$9,500	28.79%
Current assets	$16,000	48.48%
Net property, plant, & equipment	$17,000	51.52%
Total	$33,000	100.00%
Accounts payable	$7,200	21.82%
Short term debt	$6,800	20.61%
Current liabilities	$14,000	42.42%
Long-term Debt	$7,000	21.21%
Total liabilities	$21,000	63.64%
Total owners equity	$12,000	36.36%
Total liabilities and owners equity	$33,000	100.00%

Income Statement	2015
Revenues	$30,000	100.00%
Cost of goods sold	($20,000)	-66.67%
Gross profit	$10,000	33.33%
Operating expenses	($8,000)	-26.67%
Net operating income	$2,000	6.67%
Interest expense	($900)	-3.00%
Earnings before taxes	$1,100	3.67%
Taxes	($400)	-1.33%
Net Income	$700	2.33%
Project growth rate in revenues	20%
Tax rate	40%

Solution: Problem 1
Pro form Income Statement	2016
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Operating Income
Interest Expense
Earnings before Taxes
Taxes
Net Income
Balance Sheet	2016
Cash and Marketable Securities
Accounts Receivable
Inventories
Current Assets
Net, Property Plant, & Equipment
Total
Accounts Payable
Short-term Debt
Current Liabilities
Long-term Debt
Total liabilities
Total Owner's Equity	$12,000
Total Liabilities and Owner's Equity
Additional Short-term Debt Needed

Question 1. Fill in the blanks in the solution section.

Problem 2. Using your pro forma financial statements from Problem 1, estimate the firm's FCF for 2016.

Solution: Problem 2
Estimate Free Cash Flow	2016
EBIT
- Taxes
NOPAT
+ Depreciation and Amortization
- Increase in Operating Net Working Capital
- CAPEX
= Free Cash Flow

Note: Depreciation expense for 2016 = $2,000

Question 2. Fill in the blanks in the solution section.