The accounting department of Whitelands, Inc. is forecasting its 2017 income statement and balance sheet at the end of 2016. The department compiled the following assumptions about 2017.

1.Whitelands will generate a 15% operating return on total assets.

2.Inventory, accounts payable, and cost of goods sold will increase by 10% from their 2016 amounts.

3.Sales revenue and accounts receivable will also increase by 10% from their 2017 amounts.

4.The firm will purchase land for $150,000 with funds borrowed from a bank at 10% interest. (The land will be used for a future building site.)

5.Other operating expenses will increase to $650,000, due to a planned employee wage increase.

6.The income tax rate will remain at 40%.

7.Whitelands will pay a dividend of $50,000.

8.The accrued liabilities account will be used to balance the balance sheet.

Required:

(1) Use the above information along with the 2016 financial statements (below) to forecast the 2017 income statement and balance sheet (The dollar amounts are in thousands and rounded to the nearest thousand dollar amount).

Income Statements

	2017	2016
Sales revenue	2200	$2,000
Less: Cost of goods sold	1320	1,200
Gross profit	880	800
Operating expenses:
Depreciation expense	100	100
Other operating expenses	650	620
Income from operations	130	80
Interest (financing) expense	15	0
Pretax income	115	80
Income tax expense (40%)	46	32
Net income	69	$48

Balance Sheets

	12/31/17	12/31/16
Assets
Cash	119	$70
Accounts receivable, net	66	60
Inventory	132	120
Total current assets	317	250
Property, Plant and Equipment:
Land	150	0
Equipment (at cost)	1000	1,000
Less: accumulated depreciation	-600	(500)
Equipment, net of accumulated depreciation	400	500
Total Assets	867	$750
Liabilities
Accounts payable	77	$70
Accrued liabilities	111	170
Total current liabilities	188	240
Long-term Liabilities:
Notes payable	150	0
Total Liabilities	338	240
Shareholders' Equity
Common stock	400	400
Retained earnings	129	110
Total Shareholders' Equity	529	510
Total Liabilities and Shareholders' Equity	867	$750

(2) Using the 2017 forecast financial statements, forecast 2017 free cash flows.

Net income	$69
Adjustments
Depreciation	$100
Increase in AR	$-6
Increase in inventory	$-12
Increase in AP	$7
Interest on loan	$15
Decrease in accrued liabilities	$-59
Cash flow from operating activities	$114
Less: Capital expenses
Free Cash flow	$114

(3) Irrespective of your answer to requirement 2 above, determine the present value of the following free cash flows from 2017 through 2019.

Free Cash Flow	Time Value Factor 8% WACC	Present Value at 12/31/16
FCF2017: $28,000	.92593 (n= 1)	25926.04
FCF2018: 35,000	.85734 (n= 2)	30,006.90
FCF2019: 45,000	.79383 (n= 3)	35,722.35
Total		91,655.29

(4) You forecast Whitelands free cash flow to increase at 2% annual after the forecast horizon ends in 2019. Forecast free cash flows in 2020.

(5) Compute the terminal value of free cash flows. Recall that the weighted average cost of capital is 8% and the assumed growth rate is 2%.

(6) Irrespective of your answer in number 5 above, assume the terminal value is calculated at $3,230,000 Determine the firm value of Whitelands at December 31, 2016 by completing the following table.

Free Cash Flow (per Exhibit 15-5)	Time Value Factor 8% WACC	Present Value at 12/31/16
FCF2017: $28,000	.92593 (n= 1)
FCF2018: 35,000	.85734 (n= 2)
FCF2019: 45,000	.79383 (n= 3)
FCFTV: 765,000	.73503 (n= 4)
Firm Value

(7) Compute the intrinsic common equity at December 31, 2016.

(8) Assume that Whitelands has 20,000 shares of common stock outstanding at December 31, 2016. Determine the intrinsic share price at that date.

(9) Assume that Whitelands was a publicly traded company whose share price was $26.00. Based on your valuation of Whitelands, would you buy stock in the company?

(10) Assume that Whitelands was a privately-held firm instead of a publicly traded company (number 9 above). Whitelands plans to issue 20,000 shares in an initial public offering. The price of stock for the industry in which Whitelands operates trades at 8 times forecast earnings. Determine the selling price for Whitelands stock.

I need help with numbers 5-10.