The balance sheet and income statement for Webb Enterprises Inc. are found below: Balance Sheet 2015 Cash and marketable securities Accounts receivable Inventories Current assets Net property, plant, and equipment Total $ 500 6,000 9.500 $ 16,000 17.000 $ 33,000 Income Statement 2015 Accounts payable Short-term debt Current liabilities Long-term debt Total liabilities Total owners' equity Total liabilities and owners' equity $ 7,200 6.800 $ 14,000 7,000 $ 21,000 12,000 $ 33.000 Revenues Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ 30,000 (20,000) $ 10.000 (8,000) $ 2,000 (900) S 1,100 (400) $ 700 a. Prepare a pro forma income statement and balance sheet for Webb Enterprises (see Practice Problem 1 in the moduel 4), where revenues are expected to grow by 25% 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 asset 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. Owners' equity increases by the amount of firm net income for 2016 (no cash dividends are paid). Long-term debt remains unchanged, and short-term debt changes in an amount that balances the balance sheet. b. Using your pro forma financial statements, estimate the firm's FCF for 2016. Hints! 1. I/S: Interest Expense remains unchanged. 2. B/S: Long-term debt remains unchanged, and short-term debt changes in an amount that balances the balance sheet. It means that you need to the amount of external financing needed (EFN) to support the growth. Please show the additional Short-term Debt Needed. 3. To calculate the Free Cash Flow, you need to "NOPAT Depreciation, Increase in Operating Net Working Capital and CapEx. Please refer the lecture note. You can ignore the deferred taxes in the quiz 3. 4. Increase in Operating Net Working Capital =( Accounts Receivable+ Inventories) - (Accounts Payable) 5 Depreciation and Amortization for 2016 =$2,000