The following tables summarizes the 2019 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 20% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.50. Interest is forecasted at 4% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) $2,050 (50% of average assets)ª 1,230 (60% of sales) 26 (4% of debt at start of year)b Sales Costs Interest Pretax profit $ 794 Tax 238 (30% of pretax profit) Net income 556 a Assets at the end of 2018 were $4,000,000. b Debt at the end of 2018 was $660,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $4,200 Assets Debt 660 Equity 3,540 Total $4,200 $4,200 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 20% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.50. Interest is forecasted at 4% of debt at the start of the year. INCOME STATEMENT, 2019 (Figures in $ thousands) $2,050 (50% of average assets)ª 1,230 (60% of sales) 26 (4% of debt at start of year)b Sales Costs Interest Pretax profit $ 794 Tax 238 (30% of pretax profit) Net income 556 a Assets at the end of 2018 were $4,000,000. b Debt at the end of 2018 was $660,000. BALANCE SHEET, YEAR-END (Figures in $ thousands) $4,200 Assets Debt 660 Equity 3,540 Total $4,200 $4,200 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.)
Chapter12: Corporate Valuation And Financial Planning
Section: Chapter Questions
Problem 9P
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Transcribed Image Text:The following tables summarizes the 2019 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial
manager forecasts a 20% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.50.
Interest is forecasted at 4% of debt at the start of the year.
INCOME STATEMENT, 2019
(Figures in $ thousands)
$2,050 (50% of average assets)ª
1,230 (60% of sales)
Sales
a
Costs
b
Interest
26 (4% of debt at start of year)
Pretax profit
$
794
238 (30% of pretax profit)
$
Таx
Net income
556
a
Assets at the end of 2018 were $4,000,000.
Debt at the end of 2018 was $660,000.
BALANCE SHEET, YEAR-END
(Figures in $ thousands)
$ 4,200
Debt
$
3,540
Assets
660
Equity
Total
$4,200
$4,200
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.)
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