29. Long-term planning models (S30.5) Table 30.18 shows the 2022 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the Income Statement Revenue $1,785 Fixed costs 53 Variable costs (80% of revenue) 1,428 Depreciation 80 Interest (at 11.8%) 24 Taxes (at 40%) 80 Net income $ 120 Balance Sheet, Year-End 2022 2021 Assets Net working capital $ 400 $ 340 Fixed assets 800 680 Total assets $1,200 $1,020 Liabilities Debt $ 240 $ 204 Book equity 960 816 Total liabilities $1,200 $1,020 Chapter 30 Financial Planning 885 beginning of the year, plus 10% of new investment. The company plans to invest a further

$200,000 per year in fixed assets for the next five years and net working capital is expected to remain a constant proportion of fixed assets. The company forecasts that the ratio of revenues to total assets at the start of each year will remain at 1.75. Fixed costs are expected to remain at $53, and variable costs at 80% of revenue. The company’s policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 20%.

a. Construct a model for Executive Cheese like the one in Table 30.8.

b. Use your model to produce a set of financial statements for 2023.

⟩ TABLE 30.18 Financial statements for Executive Cheese Company, 2022 (figures in thousands).

Sources and Uses Sources Net income $ 120 Depreciation 80 Borrowing 36 Stock issues 104 Total sources $ 340 Uses Increase in net working capital $60 Investment 200 Dividends 80 Total uses $ 340