The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $200,000 per year for the next 5 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $60 and variable costs at 80% of revenue. The company's policy is to pay out two- thirds of net income as dividends and to maintain a book debt ratio of 20% of total capital. INCOME STATEMENT, 2019 (Figures in $ thousands) Revenue Fixed costs $1,800 60 Variable costs (80% of revenue) Depreciation Interest (8% of beginning-of-year debt) Taxable income 1,440 80 24 196 Taxes (at 40%) Net income 78 24 $ 79 $ 39 118 Dividends Addition to retained earnings BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 Assets Net working capital Fixed assets 24 400 800 Total assets $1, 200 Liabilities and shareholders' equity Debt 300 Equity Total liabilities and shareholders’ equity 900 $1,200 Required: a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?
The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $200,000 per year for the next 5 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $60 and variable costs at 80% of revenue. The company's policy is to pay out two- thirds of net income as dividends and to maintain a book debt ratio of 20% of total capital. INCOME STATEMENT, 2019 (Figures in $ thousands) Revenue Fixed costs $1,800 60 Variable costs (80% of revenue) Depreciation Interest (8% of beginning-of-year debt) Taxable income 1,440 80 24 196 Taxes (at 40%) Net income 78 24 $ 79 $ 39 118 Dividends Addition to retained earnings BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 Assets Net working capital Fixed assets 24 400 800 Total assets $1, 200 Liabilities and shareholders' equity Debt 300 Equity Total liabilities and shareholders’ equity 900 $1,200 Required: a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets. b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020. c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 7P
Related questions
Question
Transcribed Image Text:The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now
plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $200,000 per year for the next 5 years, and it
forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10% of net fixed assets at the beginning of
the year. Fixed costs are expected to remain at $60 and variable costs at 80% of revenue. The company's policy is to pay out two-
thirds of net income as dividends and to maintain a book debt ratio of 20% of total capital.
INCOME STATEMENT, 2019
(Figures in $ thousands)
Revenue
$1,800
Fixed costs
Variable costs (80% of revenue)
Depreciation
Interest (8% of beginning-of-year debt)
Taxable income
Taxes (at 40%)
60
1,440
80
24
196
78
Net income
118
Dividends
Addition to retained earnings
$ 79
$ 39
BALANCE SHEET, YEAR-END
(Figures in $ thousands)
2019
Assets
Net working capital
Fixed assets
24
400
800
Total assets
$1,200
Liabilities and shareholders' equity
Debt
$ 300
Equity
Total liabilities and shareholders' equity
900
$ 1,200
Required:
a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.
a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets.
b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for
2020.
c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?
Expert Solution
Step 1
Solution
Balance sheet is a statement of business assets , liabilities and owners equity as of any given date.
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
