Build a Model Problem

Start with the partial model in the file Ch$12$ P$10$ Build a Model.xls x on the textbook's Web site, which contains the $2023$

financial statements of Zieber Corporation. Forecast Zeiber's $2024$ 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 $2024$ as in $2023.(3)$ Zeiber 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 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.$)$

Begin by calculating the appropriate historical ratios in Column E $.$ Then put these ratios and any other input ratios in

Column G$.$

Forecast the preliminary balance sheets and income statements in Column H $.$ Don't include any line of credit or special

dividend in the preliminary forecast.

After completing the preliminary forecast of the balance sheets and income statement, go to the area below the

preliminary forecast and identify the financing deficit or surplus. Then use Excel's IF statements to specify the amount

of any new line of credit OR special dividend $($you should not have a new line of credit AND a special dividend, only one or

the other$).$

After specifying the amounts of the special dividend or line of credit, create a second column $($I$)$ for the final forecast

next to the column for the preliminary forecast $($H$).$ In this final forecast, be sure to include the effect of the special

dividend or line of credit.

$102$ a$.$ What are the forecasted levels of the line of credit and special dividends?

b$.$ Now assume that the growth in sales is only $3\%($do this by changing the growth rate in Cell G$51).$ What are the

forecasted levels of line of credit and special dividends?

Question $1$

Start with the partial model in the file Ch$12$ P$10$ Build a Model.xlsx on the textbook's Web site, which contains the

$2023$ financial statements of Zieber Corporation. Forecast Zeiber's $2024$ 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 $2024$ as in $2023.(3)$ Zeiber 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.

Estimate 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.$)$

Begin by calculating the appropriate historical ratios in Column E$.$ Then put these ratios and any other input ratios in

Column G$.$

Forecast the preliminary balance sheets and income statements in Column H$.$ Don't include any line of credit or special

dividend in the preliminary forecast.

MY MAIN QUESTION is that I need to know why I$\text{'}$m not getting the correct forecasted levels of line of credit. I have a multiple choice answer that the forecasted level of line of credit is one of these $4$ options: $$8,889,$ $$9,889,$ $$10,889,$ or $$11,889.$ Where did I go wrong?