Table 29.19 shows the 2016 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The company plans to invest a further $200,000 per year in fixed assets for the next five years and net working capital is expected to remain a constant proportion of fixed assets. The company forecasts that the ratio of revenues to total assets at the start of each year will remain at 1.75. Fixed costs are expected to remain at $53 and variable costs at 80% of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ration of 20%.

a. Construct a model for Executive Cheese like the one in Tables 29.9 to 29.11.

b. Use your model to produce a set of financial statements for 2017.

Question 27

Part Nine Financial Planning and Working Capital Management Income Statement Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest (at 11.8%) Taxes (at 40%) Net income $1,785 53 1,428 80 24 120 Balance Sheet, Year-End 2016 2015 Assets: Net working capital Fixed assets s 400 S 340 800 680 $1,200 $1,020 Total assets Liabilities: Debt Book equity S 240 204 960 816 $1,200 $1,020 Total liabilities Sources and Uses Sources: Net income Depreciation Borrowing Stock issues $120 80 36 Total sources $340 Uses: Increase in net working capital Investment Dividends S 60 200 Total uses $340 TABLE 29.19 thousands) Financial statements for Executive Cheese Company, 2016 (figures in NCE ON Look up the financial statements for any company on finance.yahoo.com. Make some plausible E WEB forecasts for future growth and the asset base needed to support that growth. Then use a spread- sheet program to develop a five-year financial plan. What financing is needed to support the planned growth? How vulnerable is the company to an error in your forecasts? Part Nine Financial Planning and Working Capital Management Income Statement Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest (at 11.8%) Taxes (at 40%) Net income $1,785 53 1,428 80 24 120 Balance Sheet, Year-End 2016 2015 Assets: Net working capital Fixed assets s 400 S 340 800 680 $1,200 $1,020 Total assets Liabilities: Debt Book equity S 240 204 960 816 $1,200 $1,020 Total liabilities Sources and Uses Sources: Net income Depreciation Borrowing Stock issues $120 80 36 Total sources $340 Uses: Increase in net working capital Investment Dividends S 60 200 Total uses $340 TABLE 29.19 thousands) Financial statements for Executive Cheese Company, 2016 (figures in NCE ON Look up the financial statements for any company on finance.yahoo.com. Make some plausible E WEB forecasts for future growth and the asset base needed to support that growth. Then use a spread- sheet program to develop a five-year financial plan. What financing is needed to support the planned growth? How vulnerable is the company to an error in your forecasts