Finance HWCH12

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ch12_p10_hw.xlsx
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Ch 12-10 Build a Model

12/7/12
Chapter: 12
Problem: 10
Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbook’s Web site, which contains the 2013 financial statements of Zieber Corporation. Forecast Zeiber's 2014 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 2014 as in 2013. (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) 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.
a. What are the forecasted levels of notes payable and special dividends?
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%
December 31 Income Statements:
(in thousands of dollars)
Forecasting 2013 2014 2014
2013 basis Ratios Inputs Forecast
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 8.00%
Special dividends $0

Mike Ehrhardt: Special dividend		 Addition to retained earnings (DRE) $12,543
December 31 Balance Sheets
(in thousands of dollars)
Forecasting 2013 2014 2014
2013 basis Ratios Inputs Without adj. Adj. With Adj.
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 Previous

Kenneth D. Jackson: Temporarily use same as previous year.
Kenneth D. Jackson: New line of credit.
Kenneth D. Jackson: Estimated sales based on a growth rate of 20%.
Kenneth D. Jackson: 85% of sales
Kenneth D. Jackson: 11% of fixed assets
Kenneth D. Jackson: Dividends are growing at 8% 		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 + DRE
Total common equity $166,745
Total liabilities and equity $345,914
Increase in spontaneous liabilities (accounts payable and accruals)
+ Increase in long-term bonds, preferred stock and common stock
+ Net income minus regular common dividends
Increase in financing
− Increase in total assets
Amount of deficit or surplus financing:
If deficit in financing (negative), draw on line of credit
If surplus in financing (positive), pay 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 G78:G79 when sales growth in G32 = 6%.
Special dividends
b. Now assume that the growth in sales is only 3%. What are the forecasted levels of line of credit and special dividends?
Required ine of credit Note: we copied values from G78:G79 when sales growth in G32 = 3%.
Special dividends