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With the partial model please forecast Zieber’s 2017 income statement and balance sheets
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With the partial model please forecast Zieber’s 2017 income statement and balance sheets. Use the following assumptions: (1) Sales grow by 6%. (2) The ratios of expenses to sales, depreciation to fixed assets, cash to sales, accounts receivable to sales, and inventories to sales will be the same in 2017 as in 2016. (3) Zieber will not issue any new stock or new long-term bonds. (4) The interest rate is 11% for long- term debt and the interest expense on long-term debt is based on the average balance during the year. (5) No interest is earned on cash. (6) Regular dividends grow at an 8% rate. Calculate the additional funds needed (AFN). If new financing is required, assume it will be raised by drawing on a line of credit with an interest rate of 12%. Assume that any draw on the line of credit will be made on the last day of the year, so there will be no additional interest expense for the new line of credit. If surplus funds are available, pay a special dividend.

·       What are the forecasted levels of the line of credit and special dividends? (Hints: Create a column showing the ratios for the current year; then create a new column showing the ratios used in the forecast. Also, create a preliminary forecast thatdoesn’t include any new line of credit or special dividends. Identify the financing deficit or surplus in this preliminary forecast and then add a new column that shows the final forecast that includes any new line of credit or special dividend.)

·       Now assume that the growth in sales is only 3%. What are the forecasted levels of the line of credit and special dividends?

 

                     
                       
Start with the partial model in the file Ch12 P10 Build a Model.xlsx on the textbook’s Web site, which contains the 2016 financial statements of Zieber Corporation. Forecast Zeiber's 2017 income statement and balance sheets. Use the following assumptions: (1) Sales grow by 6%. (2) The ratios of expenses to sales, depreciation to fixed assets, cash to sales, accounts receivable to sales, and inventories to sales will be the same in 2017 as in 2016. (3) Zeiber will not issue any new stock or new long-term bonds. (4) The interest rate is 11% for long-term debt and the interest expense on long-term debt is based on the average balance during the year. (5) No interest is earned on cash. (6) Regular dividends grow at an 8% rate. (6) Calculate the additional funds needed (AFN). If new financing is required, assume it will be raised by drawing on a line of credit with an interest rate of 12%. Assume that any draw on the line of credit will be made on the last day of the year, so there will be no additional interest expense for the new line of credit. If surplus funds are available, pay a special dividend.        
       
       
       
       
       
       
       
       
       
                       
Key Input Data:   Used in the                 
      forecast                
Tax rate     40%                
Dividend growth rate   8%                
Rate on notes payable-term debt, rstd 9%                
Rate on long-term debt, rd 11%                
Rate on line of credit, rLOC 12%                
                       
a. What are the forecasted levels of the line of credit and special dividends? (Hints: Create a column showing the ratios for the current year; then create a new column showing the ratios used in the forecast. Also, create a preliminary forecast that doesn't include any new line of credit or special dividends. Identify the financing deficit or surplus in this preliminary forecast and then add a new column that shows the final forecast that includes any new line of credit or special dividend.)        
       
       
       
       
                       
Begin by calculating the appropriate historical ratios in Column E. Then put these ratios and any other input ratios in Column G.        
       
                       
Forecast the preliminary balance sheets and income statements in Column H. Don't include any line of credit or special dividend in the preliminary forecast.        
       
                       
After completing the preliminary forecast of the balance sheets and income statement, go to the area below the preliminary forecast and identify the financing deficit or surplus. Then use Excel's IF statements to specify the amount of any new line of credit OR special dividend (you should not have a new line of credit AND a special dividend, only one or the other).        
       
       
       
                       
After specifying the amounts of the special dividend or line of credit, create a second column (I) for the final forecast next to the column for the preliminary forecast (H). In this final forecast, be sure to include the effect of the special dividend or line of credit.        
       
       
                       
                       
Income Statements:   2016 2016 Historical ratios Forecasting basis 2017 Input ratios 2017 Preliminary forecast (doesn't include special dividend or LOC) 2017 Final forecast (includes special dividend or LOC)      
(December 31, in thousands of dollars)      
           
           
Sales     $455,150   Growth            
Expenses (excluding depr. & amort.) $386,878   % of sales            
Depreciation and Amortization $14,565   % of fixed assets            
  EBIT     $53,708                
Interest expense on long-term debt $11,880   Interest rate x average debt during year            
Interest expense on line of credit $0                
  EBT     $41,828                
Taxes (40%)     $16,731                
  Net Income   $25,097                
                       
Common dividends (regular dividends) $12,554   Growth            
Special dividends       Zero in preliminary forecast            
Addition to retained earnings  $12,543                
                       
Balance Sheets   2016 2016 Historical ratios Forecasting basis 2017 Input ratios 2017 Preliminary forecast (doesn't include special dividend or LOC) 2017 Final forecast (includes special dividend or LOC)      
(December 31, in thousands of dollars)      
           
           
Assets:                      
Cash     $18,206   % of sales            
Accounts Receivable   $100,133   % of sales            
Inventories     $45,515   % of sales            
  Total current assets   $163,854                
  Fixed assets   $182,060   % of sales            
Total assets     $345,914                
                       
Liabilities and equity                    
Accounts payable   $31,861   % of sales            
Accruals     $27,309   % of sales            
Line of credit   $0   Zero in preliminary forecast            
  Total current liabilities   $59,170                
Long-term debt   $120,000   Previous            
  Total liabilities   $179,170                
Common stock   $60,000   Previous            
Retained Earnings   $106,745   Previous + Addition to retained earnings            
  Total common equity   $166,745                
Total liabilities and equity $345,914                
                       
Identify Financing Deficit or Surplus                
                       
Increase in spontaneous liabilities (accounts payable and accruals)            
+ Increase in long-term bonds, preferred stock and common stock            
+ Net income (in preliminary forecast) minus regular common dividends                
Increase in financing                    
                       
− Increase in total assets                    
Amount of financing deficit or surplus:                
                       
If deficit in financing (negative), show the amount for the line of credit            
If surplus in financing (positive), show the amount of the special dividend            
                       
a. What are the forecasted levels of the line of credit and special dividends?        
                       
Required ine of credit           Note: we copied values from H99:H100 when sales growth in G51 = 6%.
Special dividends                    
                       
b. Now assume that the growth in sales is only 3% (do this by changing the growth rate in Cell G51). What are the forecasted levels of line of credit and special dividends?        
       
                       
Required ine of credit           Note: we copied values from H99:H100 when sales growth in G51 = 3%.
Special dividends                    
                       

 

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