Financial Management and Theory CHapter 12, Problem 12. HEre is the following pr

Question

Financial Management and Theory CHapter 12, Problem 12. HEre is the following problem:

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  .

(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  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  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  . 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.

What are the forecasted levels of the line of credit and special dividends?

Now assume that the growth in sales is only  . What are the forecasted levels of the line of credit and special dividends?

The problem includes a speadsheet where you must use Excel to fill in the missing parts. Does anyoneone know how to do this? I'm lost where to start. I have the speadsheet already.

Explanation / Answer

Forecasting 2013 2014 2014 2013 basis Ratios Inputs Forecast Sales D32 Growth 6.00% $482,459 Expenses (excluding depr. & amort.) $386,878 % of sales 85.000% 85.00% $410,090 Depreciation and Amortization $14,565 % of fixed assets 8.000% $15,439 EBIT $53,708 $56,930 Interest expense on long-term debt $11,880 Interest rate x average debt during year $13,200 Interest expense on line of credit $0 EBT $41,828 $43,730 Taxes (40%) $16,731 $17,492 Net Income $25,097 $26,238 Common dividends (regular dividends) $12,554 Growth 8.00% $13,558 Special dividends $0 Addition to retained earnings (DRE) $12,543 $12,680 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 4.000% 4.000% $19,298 Accounts Receivable $100,133 % of sales 22.000% 22.000% $106,141 Inventories $45,515 % of sales 10.000% 10.000% $48,246 Total current assets $163,854 $173,685 Fixed assets $182,060 % of sales 40.000% 40.000% $192,984 Total assets $345,914 $366,669 Liabilities and equity Accounts payable $31,861 % of sales 7.000% 7.000% $33,772 Accruals $27,309 % of sales 6.000% 6.000% $28,945 Line of credit $0 Previous $4,525 Total current liabilities $59,170 $62,720 Long-term debt $120,000 Previous $120,000 Total liabilities $179,170 $182,720 Common stock $60,000 Previous $60,000 Retained Earnings $106,745 Previous + DRE $119,424 Total common equity $166,745 $179,424 Total liabilities and equity $345,914 $362,144 Increase in spontaneous liabilities (accounts payable and accruals) $3,551 + Increase in long-term bonds, preferred stock and common stock + Net income minus regular common dividends $12,680 Increase in financing $16,230 Increase in total assets $20,755 Amount of deficit or surplus financing: $4,525 If deficit in financing (negative), draw on line of credit Nil 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 $4,525 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 Nil Note: we copied values from G78:G79 when sales growth in G32 = 3%. Special dividends

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