Table 29.13 shows the 2001 financial statements for the Executive Cheese Company. Annual depreciation is 10 percent of fixed assets at the beginning of the year, plus 10 percent of new investment. The company plans to invest a further $200 per year in fixed assets for the next five years and 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 percent of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 20 percent.

a. Construct a model for Executive Cheese like the one in Tables 29.6?29.8.

b. Use your model to produce a set of financial statements for 2002.

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Income Statement $1,785 Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest (at 11.8%) Taxes (at 40%) 53 1,428 80 24 80 $ 120 Net income Sources and Uses of Funds Sources: Operating cash flow Borrowing Stock issues Total sources $ 200 36 104 $ 340 Uses: $ 60 Increase in net working capital Investment 200 Dividends Total uses $ 340 Balance Sheet, Year-end 2001 2000 Assets: $ 400 $ 340 Net working capital Fixed assets 800 680 $1,200 Total assets $1,020 Liabilities: $ 240 Debt Book equity Total liabilities $ 204 960 816 $1,200 $1,020