Table 29.11 on the next page summarizes the 2011 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 2009. 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.

a. What is the implied level of assets at the end of 2012?

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 2012?

c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2012?

AppendixLO1