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 3 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 $56,000 and variable costs at 80% of revenue. The companys policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 25% of total capital.

(Text of the Graphic) Income Statement 2019 (Thousands) Revenue - 1,800 Fixed Costs - 56 Variable Costs (80% of Revenue) 1,440 Depreciation 80 Interest (8% of beg. of year debt) 24 Taxable Income 200 Taxes (at 40%) 80 Net Income 120 Dividends 80 Addition to RE 40 Balance Sheet 2019 (Year End) Net working capital 400 Fixed Assets 800 Total Assets 1,200 Liabilities and SH Equity Debt 300 Equity 900 Total Liabilities and SH Equity 1,200

a. Produce income statements and balance sheets for 2020 through 2022. 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 pro forma balance sheets for 2020 through 2022.

c. What is the projected debt ratio for 2022?

INCOME STATEMENT, 2019 (Figures in $ thousands) Revenue Fixed costs Variable costs (80% of revenue) Depreciation Interest (8% of beginning-of-year debt) Taxable income Taxes (at 40%) Net income Dividends $80 Addition to retained earnings $40 $1,800 56 1,440 80 24 200 80 $ 120 BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 $ 400 800 $1,200 Assets Net working capital Fixed assets Total assets Liabilities and shareholders' equity Debt Equity Total liabilities and shareholders' equity $ 300 900 $1,200