Financial Planning, Build a Model

Start with the partial model in the file Ch12 P10 Build a Model.xlsx on the textbook?s Web site, which contains the 2016 financial statements of Zieber Corporation. Forecast Zeiber's 2017 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 2017 as in 2016. (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. (6) 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	40%
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.

Solution Chapter: Problem: 7/16/2015 3 15 Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets Cash and cash equivalents Short-term investments Accounts Receivable Inventories Total current assets Net fixed assets Total assets 2016 $21,000 3,759 52,500 84,000 $161,259 218,400 $379,659 2015 $20,000 3,240 48,000 56,000 $127,240 200,000 $327,240 Liabilities and equity Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total liabilities Common stock Retained Earnings Total common equity Total liabilities and equity $33,600 12,600 19,929 $66,129 67,662 $133,791 183,793 62,075 $245,868 $379,659 $32,000 12,000 6,480 $50,480 58,320 $108,800 178,440 40,000 $218,440 $327,240 Joshua & White Technologies December 31 Income Statements (Thousands of Dollars) 2016 2015 Sales $420,000 $400,000 COGS except excluding depr. and amort 300,000 298,000 Depreciation and Amortization 19,660 18,000 Other operating expenses 27,600 22,000 EBIT $72,740 $62,000 Interest Expense 5,740 4,460 EBT $67,000 $57,540 Taxes (40%) 26,800 23,016 Net Income $40,200 $34,524 Common dividends Addition to retained earnings Other Data Year-end Stock Price $18,125 $22,075 $17,262 $17,262 2016 $90.00 2015 $96.00 # of shares (Thousands) Lease payment (Thousands of Dollars) Sinking fund payment (Thousands of Dol 4,052 $20,000 $5,000 Ratio Analysis 2016 Liquidity Ratios Current Ratio Quick Ratio Asset Management Ratios Inventory Turnover (Total COGS/Inventories) Days Sales Outstanding Fixed Assets Turnover Total Assets Turnover Debt Management Ratios Debt Ratio (Total debt-to-assets) Liabilities-to-assets ratio Times-interest-earned ratio EBITDA coverage ratio Profitability Ratios Profit Margin Basic Earning Power Return on Assets Return on Equity Market Value Ratios Earnings per share Price-to-earnings ratio Cash flow per share Price-to-cash flow ratio Book Value per share Market-to-book ratio 4,000 $20,000 $5,000 2015 Industry Avg 2.58 1.53 7.69 47.45 2.04 1.23 20.0% 32.1% 15.33 4.18 8.86% 19.48% 10.93% 16.10% NA 10.65 NA 7.11 NA 1.72 a. Has Joshua & White's liquidity position improved or worsened? Explain. b. Has Joshua & White's ability to manage its assets improved or worsened? Explain. c. How has Joshua & White's profitability changed during the last year? d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009. ROE = PM TA Turnover x Equity Multiplier 2016 2015 e. Perform a common size analysis. What has happened to the composition Chapter: Problem: 12 10 Start with the partial model in the file Ch12 P10 Build a Model.xlsx on the textbook's Web site, which contains the 2016 financial statements of Zieber Corporation. Forecast Zeiber's 2017 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 2017 as in 2016. (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 longterm 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. (6) 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: Tax rate Dividend growth rate Rate on notes payable-term debt, rstd Used in the forecast 40% 8% 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: (December 31, in thousands of dollars) 2016 2016 Historical ratios Forecasting basis 2017 Input ratios Sales Expenses (excluding depr. & amort.) Depreciation and Amortization EBIT Interest expense on long-term debt Interest expense on line of credit EBT Taxes (40%) Net Income Common dividends (regular dividends) Special dividends Addition to retained earnings $455,150 $386,878 $14,565 $53,708 $11,880 $0 $41,828 $16,731 $25,097 $12,554 Growth % of sales % of fixed assets 6.0% Interest rate x average debt during year Growth Zero in preliminary forecast $12,543 Balance Sheets (December 31, in thousands of dollars) 2016 2016 Historical ratios Forecasting basis 2017 Input ratios Assets: Cash Accounts Receivable Inventories Total current assets Fixed assets Total assets $18,206 $100,133 $45,515 $163,854 $182,060 $345,914 Liabilities and equity Accounts payable Accruals Line of credit Total current liabilities Long-term debt Total liabilities Common stock Retained Earnings Total common equity Total liabilities and equity $31,861 % of sales $27,309 % of sales $0 Zero in preliminary forecast $59,170 $120,000 Previous $179,170 $60,000 Previous $106,745 Previous + Addition to retained earnings $166,745 $345,914 % of sales % of sales % of sales % of sales Identify Financing Deficit or Surplus Increase in spontaneous liabilities (accounts payable and accruals) + Increase in long-term bonds, preferred stock and common stock + Net income (in preliminary forecast) minus regular common dividends Increase in financing Increase in total assets Amount of financing deficit or surplus: If deficit in financing (negative), show the amount for the line of credit If surplus in financing (positive), show the amount of the special dividend 7/16/15 , which contains the 2016 ance sheets. Use the n to fixed assets, cash to 16. (3) Zeiber will not issue interest expense on long(6) Regular dividends grow sume it will be raised by edit will be made on the surplus funds are column showing the ratios create a preliminary g deficit or surplus in this ny new line of credit or any other input ratios in ny line of credit or special he area below the nts to specify the amount of ecial dividend, only one or (I) for the final forecast e effect of the special 2017 Preliminary forecast (doesn't include special dividend or LOC) 2017 Preliminary forecast (doesn't include special dividend or LOC) 6.0% 3.0%