Sales $2,100 (50% of average assets)ª Costs 1,050 (50% of sales) Interest 20 (38 of debt at start of year)b Pretax profit $1,030 Таx 206 (20% of pretax profit) Net income 824 a Assets at the end of 2018 were $4,100,000. ° Debt at the end of 2018 was $670,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $4,300 Assets Debt $ 670 Equity 3,630 Total $4,300 $4,300 a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in thousands.) b. If the company pays out 50% of net income as dividends, how much cash wilI Drake's need to raise in the capital markets in 2020? (Do not round your intermediate calculations. Enter your answer in thousands.) c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2020? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The following tables summarizes the 2019 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial
manager forecasts a 15% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.50.
Interest is forecasted at 3% of debt at the start of the year.
INCOME STATEMENT, 2019
(Figures in $ thousands)
$2,100 (50% of average assets)ª
1,050 (50% of sales)
Sales
a
Costs
Interest
20
(3% of debt at start of year)º
Pretax profit
$1,030
206 (20% of pretax profit)
$
Таx
Net income
824
a
Assets at the end of 2018 were $4,100,000.
Debt at the end of 2018 was $670,000.
BALANCE SHEET, YEAR-END
(Figures in $ thousands)
$ 4,300
$
3,630
Assets
Debt
670
Equity
Total
$4,300
$4,300
a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in
thousands.)
b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in 2020?
(Do not round your intermediate calculations. Enter your answer in thousands.)
c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2020? (Do not round your intermediate
calculations. Round your answer to 2 decimal places.)
Transcribed Image Text:The following tables summarizes the 2019 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 15% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.50. Interest is forecasted at 3% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) $2,100 (50% of average assets)ª 1,050 (50% of sales) Sales a Costs Interest 20 (3% of debt at start of year)º Pretax profit $1,030 206 (20% of pretax profit) $ Таx Net income 824 a Assets at the end of 2018 were $4,100,000. Debt at the end of 2018 was $670,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $ 4,300 $ 3,630 Assets Debt 670 Equity Total $4,300 $4,300 a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in thousands.) b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in 2020? (Do not round your intermediate calculations. Enter your answer in thousands.) c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2020? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
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