The following tables summarize the 2022 income statement and

year-end balance sheet of Planners Peanuts. Peanuts financial manager forecasts a 10%

increase in sales and costs in 2023. 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.

INCOME STATEMENT, 2022

(Figures in $ thousands)

Sales $2,000 (40% of average assets)a

Costs 1500 (75% of sales)

Interest 50 (5% of debt at start of year)b

Pretax profit $ 450

Tax 180 (40% of pretax profit)

Net income $ 270

a Assets at the end of 2021 were $4,800,000.

b Debt at the end of 2021 was $1,000,000

BALANCE SHEET, YEAR-END 2022

(Figures in $ thousands)

Assets $5,200 Debt $ 1000

Equity 4,200

Total $5,200 $5,200

.

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 Drakes need

to raise in the capital markets in 2023?

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