Question
Forecasting Financial Statements Sales growth rate 6% Dividend growth rate 7% Interest rate on long-term debt 11% Interest rate on line of credit 12% Tax
Forecasting Financial Statements
Sales growth rate
6%
Dividend growth rate
7%
Interest rate on long-term debt
11%
Interest rate on line of credit
12%
Tax rate
25%
a. Determining the forecasted levels of the line of credit and special dividends
Zeiber's Projected Financial Statements
(Thousands of Dollars)
1. Balance Sheets
2021
2021 Historical ratios
Assets:
Cash
$12,781.50
Accounts receivable
89,470.50
Inventories
34,084.00
Total current assets
$136,336.00
Fixed assets
161,899.00
Total assets
$298,235.00
Liabilities and equity
Accounts payable
$21,302.50
Accruals
17,042.00
Line of credit
0.00
Total current liabilities
$38,344.50
Long-term debt
120,000.00
Total liabilities
$158,344.50
Common stock
70,000.00
Retained earnings
69,890.50
Total common equity
$139,890.50
Total liabilities and equity
$298,235.00
2. Income Statements
2021
2021 Historical ratios
Sales
$426,050.00
Expenses (excluding depr. & amort.)
362,142.50
Depreciation and amortization
12,951.92
EBIT
$50,955.58
Interest expense on long-term debt
11,760.00
Interest expense on line of credit
0.00
EBT
$39,195.58
Taxes (25%)
9,798.90
Net income
$29,396.69
Regular common dividends
$14,704.00
Special dividends
0.00
Addition to retained earnings
$14,692.69
3. Elimination of the Financial Deficit or Surplus
Increase in spontaneous liabilities (accounts payable and accruals)
+ Increase in long-term bonds and common stock
+ Net income (in preliminary forecast) minus regular common dividends
- Previous line of credit
Increase in financing
- Increase in total assets
Amount of financing deficit or surplus
If deficit in financing (negative), draw on line of credit
If surplus in financing (positive), pay special dividend
b. Determining the forecasted levels of the line of credit and special dividends
Sales growth rate
Line of credit
Special dividend
(B3)
$0.00
$0.00
3%
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.)
| Required line of credit | $ fill in the blank 2 thousand |
| Special dividends | $ fill in the blank 3 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 | $ fill in the blank 4 thousand |
| Special dividends | $ fill in the blank 5 thousand |
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