Chapter:

Problem:

12
10

Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbooks 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
40%
8%

Tax rate
Dividend growth rate
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)

Sales
Expenses (excluding depr. & amort.)
Depreciation and Amortization
EBIT
Interest expense on long-term debt
Interest expense on line of credit
EBT
Taxes (40%)
Net Income
Common dividends (regular dividends)
Special dividends
Addition to retained earnings (DRE)

Forecasting
2013
2014
2013
basis
Ratios
Inputs
$455,150
Growth
$386,878
% of sales
$14,565 % of fixed assets
$53,708
$11,880 Interest rate x average debt during year
$0
$41,828
$16,731
$25,097
$12,554
Growth
8.00%
$0
$12,543

December 31 Balance Sheets

(in thousands of dollars)
Forecasting
2013
basis

2013
Ratios

2014
Inputs

Without adj.

Assets:
Cash
Accounts Receivable
Inventories
Total current assets
Fixed assets
Total assets

$18,206
$100,133
$45,515
$163,854
$182,060
$345,914

Liabilities and equity

Accounts payable
Accruals
Line of credit
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

$31,861 % of sales
$27,309 % of sales
$0 Previous
$59,170
$120,000 Previous
$179,170
$60,000 Previous
$106,745 Previous + RE
$166,745
$345,914

% of sales
% of sales
% of sales
% of sales

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

contains the
nce sheets. Use
o fixed assets,
013. (3) Zeiber
and the interest
d on cash. (6)
quired, assume
the line of credit
ne of credit. If

2014
Forecast

2014
Adj.