The following tables summarizes the 2019 income statement and end-year balance sheet of Drake’s Bowling Alleys. Drake’s financial manager forecasts a 10% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.55. Interest is forecasted at 5% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) Sales $ 2,365 (55% of average assets)a Costs 1,419 (60% of sales) Interest 34 (5% of debt at start of year)b Pretax profit $ 912 Tax 365 (40% of pretax profit) Net income $ 547 a Assets at the end of 2018 were $4,200,000. b Debt at the end of 2018 was $680,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) Assets $ 4,400 Debt $ 680 Equity 3,720 Total $ 4,400 $ 4,400 a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in thousands.) My answer is $5060 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.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 10% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.55. Interest is forecasted at 5% of debt at the start of the year.

INCOME STATEMENT, 2019
(Figures in $ thousands)
Sales	$	2,365	(55% of average assets)^a
Costs		1,419	(60% of sales)
Interest		34	(5% of debt at start of year)^b
Pretax profit	$	912
Tax		365	(40% of pretax profit)
Net income	$	547

^a Assets at the end of 2018 were $4,200,000.

^b Debt at the end of 2018 was $680,000.

BALANCE SHEET, YEAR-END
(Figures in $ thousands)
Assets	$	4,400	Debt	$	680
			Equity		3,720
Total	$	4,400		$	4,400

a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in thousands.)

My answer is $5060

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.)

Please solve for B & C. My numbers aren't correct in Mconnect. Here's my work in excel:

Sales	2601.5
Costs	-1560.9
Interest	-34
Pre-tax profit	1006.6
Tax	-402.64
Net Income	603.96
Less: Dividend paid @50% of net income	-301.98
Net income available to shareholders	301.98


Assets	5060	Debt	680
		Equity	3720
		Net income	301.98
		New equity to be issued	358.02
Total	5060		5060

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