12. Chapter Ch 12-10 Build a Model
Zieber Corporation's 2010 financial statements are shown below. Forecast Zeiber's 2011 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 2011 as in 2010. (3) Zeiber will not issue any new stock or new long-term bonds. (4) The interest rate is 9% for
short-term debt and 11% for long-term debt. (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 as notes payable.
Assume that any new notes payable will be borrowed on the last day of the year, so there will be no additional
interest expense for the new notes payable. If surplus funds are available, pay a special dividend.
a. What are the forecasted levels of notes payable and special dividends?
Key Input Data:
Tax rate
Dividend growth rate
S-T rd
Used in the
forecast
40%
8%
9%
L-T rd
11%
December 31 Income Statements:
(in thousands of dollars)
Sales
Expenses (excluding depr. & amort.)
EBITDA
Depreciation Amortization
EBIT
Net and Interest Expense
EBT
Taxes (40%)
Net Income
Common dividends (regular dividends)
Special dividends
Addition to retained earnings (DRE)
Forecasting
2010
2010
basis
Ratios
$455,150
Growth
$386,878
% of sales
$68,273
$14,565 % of fixed assets
$53,708
$11,880 Interest rate x beginning of year debt
$41,828
$16,731
$25,097
$12,554
Growth
2011
Inputs
2011
Forecast
8.00%
$12,543
December 31 Balance Sheets
(in thousands of dollars)
2010
Forecasting
basis
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
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
2010
Ratios
2011
Inputs
Without AFN
$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
Total assets =
Planned liabilities and equity =
Additional funds needed (AFN) =
Required additional notes payable =
Special dividends
$0
$0
2011
AFN