The table given below summarizes the 2022 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 2023. 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. Sales Costs Interest Pretax profit Tax Net income Income Statement $ in thousands $ 2,000 (40% of average assets) a 1,500 (75% of sales) 75 (5% of debt at start of year)b 425 170 (40% of pretax profit) $ 255 aAssets at the end of 2021 were $4,800,000. bDebt at the end of 2021 was $1,500,000. Balance Sheet $ in thousands Net assets $ 5,200 Debt Total $ 5,200 Equity Total $ 1,500 3,700 $ 5,200 a. Internal growth rate b. Sustainable growth rate % % a. What is the implied level of assets at the end of 2023? Note: 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 2023? Assumes debt remains constant. Note: Do not round intermediate calculations. 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 2023? Note: Enter your answer as a percent rounded to nearest whole number. a. Ending assets b. External financing need c. Debt ratio %
The table given below summarizes the 2022 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 2023. 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. Sales Costs Interest Pretax profit Tax Net income Income Statement $ in thousands $ 2,000 (40% of average assets) a 1,500 (75% of sales) 75 (5% of debt at start of year)b 425 170 (40% of pretax profit) $ 255 aAssets at the end of 2021 were $4,800,000. bDebt at the end of 2021 was $1,500,000. Balance Sheet $ in thousands Net assets $ 5,200 Debt Total $ 5,200 Equity Total $ 1,500 3,700 $ 5,200 a. Internal growth rate b. Sustainable growth rate % % a. What is the implied level of assets at the end of 2023? Note: 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 2023? Assumes debt remains constant. Note: Do not round intermediate calculations. 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 2023? Note: Enter your answer as a percent rounded to nearest whole number. a. Ending assets b. External financing need c. Debt ratio %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The table given below summarizes the 2022 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 2023. 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.
Sales
Costs
Interest
Pretax profit
Tax
Net income
Income Statement
$ in thousands
$ 2,000 (40% of average assets) a
1,500
75
425
(75% of sales)
(5% of debt at start of year)b
170 (40% of pretax profit)
$ 255
aAssets at the end of 2021 were $4,800,000.
bDebt at the end of 2021 was $1,500,000.
Balance Sheet
$ in thousands
Net assets
Total
$ 5,200
$ 5,200 Debt
Equity
Total
$ 1,500
3,700
$ 5,200
a. Internal growth rate
b. Sustainable growth rate
%
%
a. What is the implied level of assets at the end of 2023?
Note: 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 2023?
Assumes debt remains constant.
Note: Do not round intermediate calculations. 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 2023?
Note: Enter your answer as a percent rounded to nearest whole number.
a. Ending assets
b. External financing need
c. Debt ratio
%
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