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CHALLENGE 27. Long-term plans Table 29.19 shows the 2016 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The company plans to invest a further $200,000 per year in fixed assets for the next five years and net working capital is expected to remain a constant proportion of fixed assets. The company forecasts that the ratio of revenues to total assets at the start of each year will remain at 1.75. Fixed costs are expected to remain at $53, and variable costs at 80% of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 20%. a. Construct a model for Executive Cheese like the one in Tables 29.9 to 29.11. b. Use your model to produce a set of financial statements for 2017. Income Statement $1.785 Faxed costs 53 Variable costs of revne 1428 Depreciation BO 24 Tan 40 Net income $ 120 Balance Sheet Year-End 2016 2015 W $ 340 680 $1,020 $ 204 DE M $1,020 capital of the OF CUR Networking capital $ 400 Freda Total assets $1,200 Libilities Debt $ 240 Book egy Total basies $1.200 Sources and Uses Source Net income Depreciation 80 Borrowing 36 Stocks 104 Total sources $340 Uses Increase in networking capital $ 60 200 Dividends Total uses $120 worki in 201 labot LO lance GUTE com TABLE 29.19 Financial statements for Executive Cheese Company, 2016 (figures in thousands) FINANCE ON THE WEB Look up the financial statements for any company on finance.yahoo.com. Make some plausible forecasts for future growth and the asset base needed to support that growth. Then use a specad. sheet program to develop a five-year financial plan. What financing is needed to support the planned growth? How vulnerable is the company to an error in your forecasts? CHALLENGE 27. Long-term plans Table 29.19 shows the 2016 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The company plans to invest a further $200,000 per year in fixed assets for the next five years and net working capital is expected to remain a constant proportion of fixed assets. The company forecasts that the ratio of revenues to total assets at the start of each year will remain at 1.75. Fixed costs are expected to remain at $53, and variable costs at 80% of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 20%. a. Construct a model for Executive Cheese like the one in Tables 29.9 to 29.11. b. Use your model to produce a set of financial statements for 2017. Income Statement $1.785 Faxed costs 53 Variable costs of revne 1428 Depreciation BO 24 Tan 40 Net income $ 120 Balance Sheet Year-End 2016 2015 W $ 340 680 $1,020 $ 204 DE M $1,020 capital of the OF CUR Networking capital $ 400 Freda Total assets $1,200 Libilities Debt $ 240 Book egy Total basies $1.200 Sources and Uses Source Net income Depreciation 80 Borrowing 36 Stocks 104 Total sources $340 Uses Increase in networking capital $ 60 200 Dividends Total uses $120 worki in 201 labot LO lance GUTE com TABLE 29.19 Financial statements for Executive Cheese Company, 2016 (figures in thousands) FINANCE ON THE WEB Look up the financial statements for any company on finance.yahoo.com. Make some plausible forecasts for future growth and the asset base needed to support that growth. Then use a specad. sheet program to develop a five-year financial plan. What financing is needed to support the planned growth? How vulnerable is the company to an error in your forecasts

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