The table given below 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 0.40. Interest is forecasted at 5% of debt at the start of the year. Income Statement $ in thousands Sales $ 2,600 (40% of average assets)a Costs 1,950 (75% of sales) Interest 105 (5
The table given below summarizes the 2019 income statement and end-year
| Income Statement | |||
| $ in thousands | |||
| Sales | $ | 2,600 | (40% of average assets)a |
| Costs | 1,950 | (75% of sales) | |
| Interest | 105 | (5% of debt at start of year)b | |
| Pretax profit | 545 | ||
| Tax | 218 | (40% of pretax profit) | |
| Net income | $ | 327 | |
aAssets at the end of 2018 were $6,240,000.
bDebt at the end of 2018 was $2,100,000.
| Balance Sheet | |||||||
| $ in thousands | |||||||
| Net assets | $ | 6,760 | Debt | $ | 2,100 | ||
| Equity | 4,660 | ||||||
| Total | $ | 6,760 | Total | $ | 6,760 | ||
a. What is the implied level of assets at the end of 2020? (Enter your answer in dollars not in thousands.)
b. If the company pays out 50% of net income as dividends, how much cash will Drake need to raise in the capital markets in 2020? Assumes debt remains constant. (Enter your answer in dollars not in thousands.)
c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2020?
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