Excel Activity: Forecasting Financial Statements

Question $1$

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Start with the partial model in the file Ch$09$ P$10$ Build a Model.xIsx, which contains the $2021$ financial statements of Zieber Corporation. Forecast Zieber'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, inventories to sales, fixed assets to sales, accounts payable to sales, and accruals to sales will be the same in $2022$ as in $2021.(3)$ Zieber will not issue any new stock or new long$-$term bonds. $(4)$ The interest rate is $12\%$ 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 a $9\%$ 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 $13\%.$ 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.

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below.

Do not round intermediate calculations. Enter your answers in thousands. For example, an answer of $$1\mathrm{.}23$ thousand should be entered as $1\mathrm{.}23,$ not $1,230.$ Round your answers to two decimal places. If your answer is zero, enter $"0".$

Download spreadsheet Ch$09$ P$10$ Build a Model$-$e$3$b$35$e$.$xlsx

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.$)$

$\backslash$table$[[$Required line of credit,$$,$thousand$],[$Special dividends,$$,$thousand$]]$

b$.$ Now assume that the growth in sales is only $3\%.$ What are the forecasted levels of the line of credit and special dividends?

Required line of credit

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thousand