Fundamentals Of Corporate Finance, 9th Edition
9th Edition
ISBN: 9781260052220
Author: Richard Brealey; Stewart Myers; Alan Marcus
Publisher: McGraw-Hill Education
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Chapter 18, Problem 8QP
a)
Summary Introduction
To compute: The asset’s implied level.
b)
Summary Introduction
To compute: The amount of cash required to raise in capital market.
c)
Summary Introduction
To compute: The ratio of debt.
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The following tables summarize the 2022 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 2023. 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.
Sales
Costs
Interest
Pretax profit
Tax
Net income
INCOME STATEMENT, 2022
(Figures in $ thousands)
$ 1,750
1,050
(50% of average assets) a
(60% of sales)
(4% of debt at start of year) b
24
$ 676
203
$ 473
(30% of pretax profit)
a
b
Assets at the end of 2021 were $3,400,000.
Debt at the end of 2021 was $600,000.
Assets
Total
BALANCE SHEET, YEAR-END 2022
(Figures in $ thousands)
$ 3,600
$ 3,600
Debt
Equity
$ 600
3,000
$ 3,600
a. What the implied level of assets at the end of 2023?
Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands.
b. If the company pays out 50% of net income as dividends, how much cash will Drake's…
The following tables summarize the 2022 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 2023. 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.
Sales
Costs
Interest
Pretax profit
Tax
Net income
Assets
Total
INCOME STATEMENT, 2022
(Figures in $ thousands)
$ 1,300
780
20
a
Assets at the end of 2021 were $2,500,000.
b Debt at the end of 2021 was $510,000.
$ 500
150
$ 350
(50% of average assets)
(60% of sales)
(4% of debt at start of year)b
(30% of pretax profit)
BALANCE SHEET, YEAR-END 2022
(Figures in $ thousands)
$ 2,700
$ 2,700
a. Implied level of assets
b. Additional cash
c. Debt ratio
Debt
Equity
$ 510
2,190
$ 2,700
a. What is the implied level of assets at the end of 2023?
Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your
answer in thousands.
b. If the company pays out…
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% 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…
Chapter 18 Solutions
Fundamentals Of Corporate Finance, 9th Edition
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