22 Hours. Excel + Questions A & B

Must work well with Income Statements and Balance Sheets.

Build a Model

financial statements of Zieber Corporation. Forecast Zeiber’s 2019 income statement and balance sheets. Use the following assumptions: (1)

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 2019 as in 2018. (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) Regular 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.

8%

11%

12%

(Hints: Create a column showing the ratios for the current year; then create a new column showing the ratios used in the forecast. Also, create a preliminary forecast that doesn’t include any new line of credit or special dividends. Identify the financing deficit or surplus in this preliminary forecast and then add a new column that shows the final forecast that includes any new line of credit or special dividend.)

2018

Sales

Growth

2018
2018 Historical ratios
Forecasting basis
2019 Input ratios
2019 Preliminary forecast (doesn’t include special dividend or LOC)
2019 Final forecast (includes special dividend or LOC)

(December 31, in thousands of dollars)

% of sales

% of sales

Mike Ehrhardt: Percent of forecasted sales.

% of sales

Mike Ehrhardt: Percent of forecasted sales.

% of sales

Mike Ehrhardt: Percent of forecasted sales.

% of sales

Mike Ehrhardt: Percent of forecasted sales.

% of sales

Mike Ehrhardt: Percent of forecasted sales.

$0

Zero in preliminary forecast

Previous

$345,914

a. What are the forecasted levels of the line of credit and special dividends?
Special dividends
Required ine of credit

Special dividends

Student

3/17/17

Chapter:

9

Problem:

10

Start with the partial model in the file Ch09 P10 Build a Model.xlsx on the textbook’s Web site, which contains the

2018

Sales

11%

8%

12%

Key Input Data:

Used in the

forecast

Tax rate

40%

Dividend growth rate

Rate on notes payable-term debt, rstd

9%

Rate on long-term debt, rd

Rate on line of credit, rLOC

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

Begin by calculating the appropriate historical ratios in Column E. Then put these ratios and any other input ratios in Column G.

Forecast the preliminary balance sheets and income statements in Column H. Don’t include any line of credit or special dividend in the preliminary forecast.

After completing the preliminary forecast of the balance sheets and income statement, go to the area below the preliminary forecast and identify the financing deficit or surplus. Then use Excel’s IF statements to specify the amount of any new line of credit OR special dividend (you should not have a new line of credit AND a special dividend, only one or the other).

After specifying the amounts of the special dividend or line of credit, create a second column (I) for the final forecast next to the column for the preliminary forecast (H). In this final forecast, be sure to include the effect of the special dividend or line of credit.

Income Statements:

2018 Historical ratios

Forecasting basis

2019 Input ratios

2019 Preliminary forecast (doesn’t include special dividend or LOC)

2019 Final forecast (includes special dividend or LOC)

(December 31, in thousands of dollars)

$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

Kenneth D. Jackson: Dividends are growing at 8%

Special dividends

Zero in preliminary forecast

Mike Ehrhardt: Special dividend in preliminary forecast is zero.

Mike Ehrhardt: The special dividend in the final forecast should be equal to the amount specified in the area below the balance sheets.

Addition to retained earnings

$12,543

Mike Ehrhardt: The addition to retained earnings is equal to the net income minus any regular and special dividends.

Balance Sheets

Assets:

Cash

$18,206

Mike Ehrhardt: Percent of forecasted sales.

Accounts Receivable

$100,133

Inventories

$45,515

Total current assets

$163,854

Fixed assets

$182,060

Total assets

$345,914

Liabilities and equity

Accounts payable

$31,861

Accruals

$27,309

Line of credit

Mike Ehrhardt: Line of credit is zero in preliminary forecast.

Mike Ehrhardt: In final forecast, the line of credit is equal to the amount specified in the section below the balance sheets.

Kenneth D. Jackson: Estimated sales based on the growth rate.

Kenneth D. Jackson: Percent of forecasted sales.

Kenneth D. Jackson: Percent of forecasted fixed assets.

Total current liabilities

$59,170

Long-term debt

$120,000

Previous

Total liabilities

$179,170

Common stock

$60,000

Retained Earnings

$106,745

Previous + Addition to retained earnings

Mike Ehrhardt: The amount shown in retained earnings in the preliminary forecast is equal to the amount from the previous year’s balance sheet plus the addition to retained earnings on the preliminary forecasted income statement.

Mike Ehrhardt: The amount shown in retained earnings in the final forecast is equal to the amount from the previous year’s balance sheet (not the amount from the preliminary forecast) plus the addition to retained earnings on the final forecasted income statement.

Total common equity

$166,745

Total liabilities and equity

Identify Financing Deficit or Surplus

Increase in spontaneous liabilities (accounts payable and accruals)

+ Increase in long-term bonds, preferred stock and common stock

+ Net income (in preliminary forecast) minus regular common dividends

Increase in financing

− Increase in total assets

Amount of financing deficit or surplus:

If deficit in financing (negative), show the amount for the line of credit

If surplus in financing (positive), show the amount of the special dividend

Required ine of credit

Note: we copied values from H99:H100) when sales growth in G51 = 6%.

b. Now assume that the growth in sales is only 3% (do this by changing the growth rate in Cell G51). What are the forecasted levels of line of credit and special dividends?

Note: we copied values from H99:H100) when sales growth in G51 = 3%.