Table 29.18 shows the 2013 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 ratio of 20%.

a. Construct a model for Executive Cheese like the one in Tables 29.8 - 29.10.

b. Use your model to produce a set of financial statements for 2014.

TABLE 29.18

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Income Statement $1,785 53 1,428 80 24 80 S 120 Revenue Variable costs (80% of revenue) Depreciation Interest (at 1 1.8%) Taxes (at 40%) Net income Balance Sheet, Year-end 2013 2012 Assets: Net working capital Fixed assets S 400 800 $1,200 s 340 680 $1,020 Total assets Liabilities: s 240 講30 $1,200 $ 204 816 $1,020 Debt Book equity Total liabilities Soureex and Use Sources: Net income Depreciation Borrowing Stock issues G12 80 36 104 $340 Total sources 42に Increase in net working capital S 60 200 80 $340 Dividends Total uses