Managerial Finance

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Financing Deficit

Corporate Valuation and l-irrancial Planning

c. In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2014 because it was assumed that the new debt was added at the end ofthe year. But now srlppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b?

Garlington Technologies Inc.'s 2013 financial statements are shown here:

Balance Sheet as of December 31, 2013

Cash $ tgo,ooo Accounts payable Receivables 360,000 Notes payable Inventories 720,A00 Line of credit

Total current assets $1,260,000 Accruals Fixed assets 1,440,000 Total current liabilities

$2,700,qqg

Comrnon stock

Retained earnings

Total liabilities and equity

Income Statement for December 31, 2013

Total assets

$ 360,000 156,000

0

180,000

$ 696,000 1,800,000

204,000

$2,700,000

Saies

Operating costs

EBIT

Interest

Pre-tax earnings

Taxes (40%)

Net income Dividends

$3,500,000

3,279,72A

$ 320,280 18,280

$ 302,000 120,800

$_1812qq $ 108,000

Suppose that in 2014 sales increase by 10% over 2013 sales and *tat2014 dividends will increase to $112,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new debt will be in the form of a line of credit.

ii:-:i;1 Build a Model:

Forecasting Financial Statements

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: (t) Sales grow by 6yo. (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. (a) The interest rate is llo/o for long-term debt and the interest expense on