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Practice Problem 10 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 (that is assets net of depreciation) by $4,000,000 per year for the next 5 years and forecasts that the ratio of revenues to total assets will remain at 1.5. Annual depreciation is 10 percent of net fixed assets at the end of 2012. Fixed costs are expected to remain at $70,000 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 25% of total capital. INCOME STATEMENT, 2012 (figures in thousands of dollars) Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest (8% of beginning-of-year debt) Taxable income Taxes (at 40%) Net Income Dividends Retained earnings $36,000 70 28,800 1,600 480 5,050 2,020 $3,030 $2,020 $1,010 BALANCE SHEET, YEAR-END, 2012 (figures in thousands of dollars) Assets Net working capital Fixed assets Total assets Liabilities and shareholders' equity Debt Equity Total liabilities and shareholders' equity Assumptions Net working capital to fixed assets Net fixed asset investment increase Revenue to Total Assets Depreciation Fixed costs Variable costs Dividend payout rate Book debt ratio Revenue growth Interest rate on debt Tax rate $8,000 16,000 $24,000 $6,000 18,000 $24,000 50% $4,000,000 1.5 10% $70 80% 25% a Produce a set of financial statements for 2013. Assume that net working capital will equal 50% of fixed assets. (Do not round intermeddiate calculations. Enter your answers in thousands.) PRO FORMA INCOME STATEMENT, 2013 (figures in thousands of dollars) Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest Taxable income Taxes Net Income Dividends Retained earnings Comment 70 Unchanged $0 $0 $0 BALANCE SHEET, YEAR-END 2013 (figures in thousands of dollars) Assets Net working capital Fixed assets Total assets Liabilities and shareholders' equity Debt Equity Total liabilities and shareholders' equity Comment $0 $0 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 2013. BALANCE SHEET, YEAR-END 2013 (figures in thousands of dollars) Assets Net working capital Fixed assets Total assets Liabilities and shareholders' equity Debt Equity Total liabilities and shareholders' equity c. What is the projected debt ratio for 2013? Comment $0 $0