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 0.40. Interest is forecasted at 3% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) Sales $1,560 (48% of average assets)a 780 (50% of sales) (3% of debt at start of Costs 19 year)b $ 761 152 (20% of pretax profit) $ 609 Interest Pretax profit Таx Net income ª Assets at the end of 2018 were $3,800,000. Debt at the end of 2018 was $640,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $4,000 $ 640 3,360 Assets Debt Equity Total $4,000 $4,000 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.)
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 0.40. Interest is forecasted at 3% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) Sales $1,560 (48% of average assets)a 780 (50% of sales) (3% of debt at start of Costs 19 year)b $ 761 152 (20% of pretax profit) $ 609 Interest Pretax profit Таx Net income ª Assets at the end of 2018 were $3,800,000. Debt at the end of 2018 was $640,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $4,000 $ 640 3,360 Assets Debt Equity Total $4,000 $4,000 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:**Income Statement and Balance Sheet Analysis of Drake’s Bowling Alleys, 2019**
The following details summarize 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 0.40. Interest is forecasted at 3% of the debt at the start of the year.
### Income Statement, 2019
*(Figures in $ thousands)*
- **Sales:** $1,560 (40% of average assets)¹
- **Costs:** $780 (50% of sales)
- **Interest:** $19 (3% of debt at start of year)²
- **Pretax Profit:** $761
- **Tax:** $152 (20% of pretax profit)
- **Net Income:** $609
¹ Assets at the end of 2018 were $3,800,000.
² Debt at the end of 2018 was $640,000.
### Balance Sheet, Year-End
*(Figures in $ thousands)*
| **Assets** | **Debt** |
|------------|----------|
| $4,000 | $640 |
| **Debt:** | $640 |
| **Equity:**| $3,360 |
| **Total:** | $4,000 |
| **Total:** | $4,000 |
### Questions:
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 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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