19. Long-term planning models (S30.4) Table 30.15 summarizes the 2022 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 2023. 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.

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Dynamic Mattress’s spreadsheet BEYOND THE PAGE mhhe.com/brealey14e Try It!

Dynamic Mattress’s spreadsheet Income Statement Sales $1,000 (40% of average assets)a Costs 750 (75% of sales)

Interest 25 (5% of debt at start of year)b Pretax profit 225 Tax 90 (40% of pretax profit)

Net income $135 Balance Sheet Net assets $2,600 Debt $500 Equity 2,100 Total $2,600 Total $2,600

⟩ TABLE 30.15 Financial statements for Drake’s Bowling Alleys, 2022 (figures in thousands). See Problem 19.

aAssets at the end of 2021 were $2,400,000.

bDebt at the end of 2021 was $500,000.

Chapter 30 Financial Planning 883

a. What is the implied level of assets at the end of 2023?

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 2023?

c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2023?