Principles of Corporate Finance
Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 29, Problem 23PS

Long-term financial plans* Table 29.15 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 .40. Interest is forecasted at 5% of debt at the start of the year.

  1. a. What is the implied level of assets at the end of 2020?
  2. 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?
  3. 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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