Chapter 29, Problem 29PS

Long-term plans Table 29.18 shows the 2019 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%.

1. a. Construct a model for Executive Cheese like the one in Table 29.9.
2. b. Use your model to produce a set of financial statements for 2020.

TABLE 29.18 Financial statements for Executive Cheese Company, 2019 (figures in thousands)