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Income Statement for December 31,2021

Sales $4,000,000

Operating costs $3,200,000

EBIT $800,00

Interest 120,000

Pre-tax earnings $680,000

Taxes (25%) 170,000

Net income $510,000

Dividends $190,000

Balance Sheet as of December 31, 2021 Cash

Cash $160,000 Accounts payable $360,000

Receivables 360,000 Line of credit 0

Inventories 720,000 Accruals 200,000

Total CA $1,240,000 Total CL $560,000

Long term bonds $1,000,000

Fixed assets 4,000,000 Common stock $1,100,000

RE $2,580,000

Total assets $5,240,000 Total L&E $5,240,000

Start with the partial model in the file Ch09 P10 Build a Model.xlsx on the textbooks Web site, which contains the 2021 financial statements of Zieber Corporation. Forecast Ziebers 2022 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 2022 as in 2021.

(3) Zieber 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) Regular dividends grow at an 8% rate.

(7) The tax rate is 25%.

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 the line of credit and special divi-dends? (Hints: Create a column showing the ratios for the current year; then create a new column showing the ratios used in the fore-cast. Also, create a preliminary forecast that doesnt 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.)

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

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