Chapter 09.

Solution for Ch 09-10 Build a Model

Zieber Corporation's 2012 financial statements are shown below. Forecast Zeiber's 2013 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
2013 as in 2012. (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: Used in the

forecast
Tax rate 40%
Dividend growth rate 8%
S-T rd 9%
L-T rd 11%

December 31 Income Statements:

(in thousands of dollars)
Forecasting 2012 2013
2012 basis Ratios Inputs
Sales $455,150 Growth 6.00%
Expenses (excluding depr. & amort.) $386,878 % of sales 85.000% 85.00%
EBITDA $68,273
Depreciation and Amortization $14,565 % of fixed assets 8.000% 8.00%
EBIT $53,708
Net Interest Expense $11,880 Interest rate x beginning of year debt
EBT $41,828
Taxes (40%) $16,731
Net Income $25,097
Common dividends (regular dividends) $12,554 Growth 8.00%
Special dividends
Addition to retained earnings (DRE) $12,543

December 31 Balance Sheets

(in thousands of dollars)
Forecasting 2012 2013
2012 basis Ratios Inputs Without AFN
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% $28,948
Notes payable $0 Previous $0
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 + RE $119,424
Total common equity $166,745 $179,424
Total liabilities and equity $345,914 $362,144
$0.000
Total assets = $366,669
Planned liabilities and equity = $362,144
Additional funds needed (AFN) = $4,525

Required additional notes payable = $4,525

Special dividends $0
tement and
sales,
ll be the same in
te is 9% for
an 8% rate. (6)
s notes payable.
additional

2013
Forecast
$482,459
$410,090
$72,369
$15,439
$56,930
$13,200
$43,730
$17,492
$26,238
$13,558
$0
$12,680

2013
AFN
$4,525