# Ch12 p10 build a model

Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbook’s Web site, which contains the 2013 financial statements of Zieber Corporation. Forecast Zeiber’s 2014 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 2014 as in 2013. (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) 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.                                                                                                                                                     a. What are the forecasted levels of notes payable and special dividends?                                                                     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%                                                 December 31 Income Statements:                       (in thousands of dollars)                                 Forecasting 2013 2014 2014                   2013 basis Ratios Inputs Forecast             Sales     \$455,150 Growth                   Expenses (excluding depr. & amort.) \$386,878 % of sales                   Depreciation and Amortization \$14,565 % of fixed assets                     EBIT     \$53,708                     Interest expense on long-term debt \$11,880 Interest rate x average debt during year               Interest expense on line of credit \$0                       EBT     \$41,828                     Taxes (40%)     \$16,731                       Net Income   \$25,097                     Common dividends (regular dividends) \$12,554 Growth   8.00%               Special dividends         \$0               Addition to retained earnings (DRE) \$12,543                                                                                                         December 31 Balance Sheets                       (in thousands of dollars)                               Forecasting 2013 2014   2014                 2013 basis Ratios Inputs Without adj. Adj. With Adj.           Assets:                           Cash   \$18,206 % of sales                     Accounts Receivable \$100,133 % of sales                     Inventories   \$45,515 % of sales                       Total current assets \$163,854                         Fixed assets \$182,060 % of sales                     Total assets   \$345,914                                                   Liabilities and equity                         Accounts payable \$31,861 % of sales                     Accruals   \$27,309 % of sales                     Line of credit \$0 Previous                       Total current liabilities \$59,170                       Long-term debt \$120,000 Previous                       Total liabilities \$179,170                       Common stock \$60,000 Previous                     Retained Earnings \$106,745 Previous + DRE                     Total common equity \$166,745                       Total liabilities and equity \$345,914                                                                               Increase in spontaneous liabilities (accounts payable and accruals)                   + Increase in long-term bonds, preferred stock and common stock                   + Net income minus regular common dividends                     Increase in financing                         − Increase in total assets                         Amount of deficit or surplus financing:                       If deficit in financing (negative), draw on line of credit                   If surplus in financing (positive), pay special dividend                                               a. What are the forecasted levels of the line of credit and special dividends?                                         Required ine of credit           Note: we copied values from G78:G79 when sales growth in G32 = 6%. Special dividends                                                     b. Now assume that the growth in sales is only 3%. What are the forecasted levels of line of credit and special dividends?                                                     Required ine of credit           Note: we copied values from G78:G79 when sales growth in G32 = 3%. Special dividends