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Forecasting Financial Statements

Sales growth rate

6%

Dividend growth rate

7%

Interest rate on long-term debt

11%

Interest rate on line of credit

12%

Tax rate

25%

a. Determining the forecasted levels of the line of credit and special dividends

Zeiber's Projected Financial Statements

(Thousands of Dollars)

1. Balance Sheets

2021

2021 Historical ratios

Assets:

Cash

$12,781.50

Accounts receivable

89,470.50

Inventories

34,084.00

Total current assets

$136,336.00

Fixed assets

161,899.00

Total assets

$298,235.00

Liabilities and equity

Accounts payable

$21,302.50

Accruals

17,042.00

Line of credit

0.00

Total current liabilities

$38,344.50

Long-term debt

120,000.00

Total liabilities

$158,344.50

Common stock

70,000.00

Retained earnings

69,890.50

Total common equity

$139,890.50

Total liabilities and equity

$298,235.00

2. Income Statements

2021

2021 Historical ratios

Sales

$426,050.00

Expenses (excluding depr. & amort.)

362,142.50

Depreciation and amortization

12,951.92

EBIT

$50,955.58

Interest expense on long-term debt

11,760.00

Interest expense on line of credit

0.00

EBT

$39,195.58

Taxes (25%)

9,798.90

Net income

$29,396.69

Regular common dividends

$14,704.00

Special dividends

0.00

Addition to retained earnings

$14,692.69

3. Elimination of the Financial Deficit or Surplus

Increase in spontaneous liabilities (accounts payable and accruals)

+ Increase in long-term bonds and common stock

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

- Previous line of credit

Increase in financing

- Increase in total assets

Amount of financing deficit or surplus

If deficit in financing (negative), draw on line of credit

If surplus in financing (positive), pay special dividend

b. Determining the forecasted levels of the line of credit and special dividends

Sales growth rate

Line of credit

Special dividend

(B3)

$0.00

$0.00

3%

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

Required line of credit	$ fill in the blank 2 thousand
Special dividends	$ fill in the blank 3 thousand

b.Now assume that the growth in sales is only 3%. What are the forecasted levels of the line of credit and special dividends?

Required line of credit	$ fill in the blank 4 thousand
Special dividends	$ fill in the blank 5 thousand

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