Chapter 12. Ch 12-10 Build a Model

Zieber Corporation's 2010 financial statements are shown below. Forecast Zeiber's 2011 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 2011 as in 2010. (3) Zeiber will not issue any new stock or new long-term bonds. (4) The interest rate is 9% for short-term debt and 11% for long-term debt. (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 as notes payable. Assume that any new notes payable will be borrowed on the last day of the year, so there will be no additional interest expense for the new notes payable. 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%

S-T rd

9%

L-T rd

11%

December 31 Income Statements:

(in thousands of dollars)

Forecasting

2010

2011

2011

2010

basis

Ratios

Inputs

Forecast

Sales

$455,150

Growth

6.00%

$482,459

Expenses (excluding depr. & amort.)

$386,878

% of sales

EBITDA

$68,273

Depreciation and Amortization

$14,565

% of fixed assets

EBIT

$53,708

Net Interest Expense

$11,880

Interest rate x beginning of year debt

EBT

$41,828

Taxes (40%)

$16,731

Net Income

$25,097

Common dividends (regular dividends)

$12,554

Growth

8.00%

Special dividends

Addition to retained earnings (DRE)

$12,543

December 31 Balance Sheets

(in thousands of dollars)

Forecasting

2010

2011

2011

2010

basis

Ratios

Inputs

Without AFN

AFN

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

Notes payable

$0

Previous

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

$0.000

Total assets =

Planned liabilities and equity =

Additional funds needed (AFN) =

Required additional notes payable =

$0

Special dividends

$0

a. What are the forecasted levels of notes payable and special dividends?

Required additional notes payable =

Note: we copied values from G73:G74 when sales growth in G30 = 6%.

Special dividends

b. Now assume that the growth in sales is only 3%. What are the forecasted levels of notes payable and special dividends?

Required additional notes payable =

Note: we copied values from G73:G74 when sales growth in G30 = 3%.

Special dividends