BuiA$1$:I$1031/1/21$

Chapter: $9$

Problem: $10$

Start with the partial model in the file Ch$09$ P$10$ Build a Model.xlsx on the textbook$$s Web site, which contains the $2021$ financial statements of Zieber Corporation. Forecast Zeiber's $2022$ 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 $2022$ as in $2021.(3)$ 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. $(7)$ The tax rate is $25\%.$ 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 $25\%$

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: $20212021$ Historical ratios Forecasting basis $2022$ Input ratios $2022$ Preliminary forecast $($doesn$\text{'}$t include special dividend or LOC$)2022$ Final forecast $($includes special dividend or LOC$)$

$($December $31,$ in thousands of dollars$)$

Sales $$455,150$ Growth $6\mathrm{.}0\%$ $$482,459$ $$482,459$

Expenses $($excluding depr. & amort.$)$ $$386,87885\mathrm{.}0\%\%$ of sales $85\mathrm{.}0\%$ $$410,090$ $$410,090$

Depreciation and Amortization $$14,5654\mathrm{.}0\%\%$ of fixed assets $4\mathrm{.}0\%$ $$14,565$ $$14,565$

EBIT $$53,708$ $$56,930$ $$56,930$

Interest expense on long$-$term debt $$11,880$ Interest rate x average debt during year $$1,307$ $$1,307$

Interest expense on line of credit $$0$ $$0$

EBT $$41,828$

Taxes $(25\%)$ $$10,457$ $$13,071$

Net Income $$25,097$ $$26,602$

Common dividends $($regular dividends$)$ $$12,554$ Growth $8\mathrm{.}00\%$ $$13,558$

Special dividends Zero in preliminary forecast $$0$ $$0$

Addition to retained earnings $$12,543$

Balance Sheets $20212021$ Historical ratios Forecasting basis $2022$ Input ratios $2022$ Preliminary forecast $($doesn$\text{'}$t include special dividend or LOC$)2022$ Final forecast $($includes special dividend or LOC$)$

$($December $31,$ in thousands of dollars$)$

Assets:

Cash $$18,2064\mathrm{.}0\%\%$ of sales $4\mathrm{.}00\%$ $$19,298$ $$19,298$

Accounts Receivable $$100,13322\mathrm{.}0\%\%$ of sales $22\mathrm{.}00\%$ $$106,141$ $$106,141$

Inventories $$45,51510\mathrm{.}0\%\%$ of sales $10\mathrm{.}00\%$ $$48,246$ $$48,246$

Total current assets $$163,854$

Fixed assets $$364,12080\mathrm{.}0\%\%$ of sales $80\mathrm{.}00\%$ $$385,967$ $$385,9$