Scribd
Upload
225 views6 pages

Ch12 P10 Build A Model

Uploaded by

anasaziz7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
225 views6 pages

Ch12 P10 Build A Model

Uploaded by

anasaziz7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Chapter: 12

Problem: 10

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:
(December 31, in thousands of dollars) 2016
Historical 2017 Input
2016 ratios Forecasting basis ratios
Sales $455,150 6.00% Growth
Expenses (excluding depr. & amort.) $386,878 85.0% % of sales
Depreciation and Amortization $14,565 8.0% % 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
(December 31, in thousands of dollars) 2016
Historical 2017 Input
2016 ratios Forecasting basis ratios
Assets:
Cash $18,206 4.0% % of sales
Accounts Receivable $100,133 22.0% % of sales
Inventories $45,515 10.0% % of sales
Total current assets $163,854
Fixed assets $182,060 40.0% % of sales
Total assets $345,914

Liabilities and equity


Accounts payable $31,861 7.0% % of sales
Accruals $27,309 6.0% % 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
7/16/15

, which contains the 2016


ance sheets. Use the
n to fixed assets, cash to
16. (3) Zeiber will not issue
e interest expense on long-
(6) Regular dividends grow
sume it will be raised by
redit will be made on the
f surplus funds are

column showing the ratios


create a preliminary
g deficit or surplus in this
ny new line of credit or

any other input ratios in

ny line of credit or special

the area below the


nts to specify the amount
special dividend, only one

(I) for the final forecast


e effect of the special

2017 Preliminary
forecast (doesn't
include special
dividend or LOC)
$482,459
$410,090
$15,439
$56,930
$13,200
$0
$43,730
$17,492
$26,238

$13,558

$12,680

2017 Preliminary
forecast (doesn't
include special
dividend or LOC)

$19,298
$106,141
$48,246
$173,685
$192,984
$366,669

$33,772
$28,948
$0
$62,720
$120,000
$182,720
$60,000
$119,424
$179,424
$362,144
6.0%
3.0%

You might also like