Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following tables summarizes the 2019 income statement and end-year balance sheet of Drakes Bowling Alleys. Drakes financial manager forecasts a 10% increase in sales

The following tables summarizes the 2019 income statement and end-year balance sheet of Drakes Bowling Alleys. Drakes financial manager forecasts a 10% increase in sales and costs in 2020. 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.

INCOME STATEMENT, 2019
(Figures in $ thousands)
Sales $ 1,240 (40% of average assets)a
Costs 930 (75% of sales)
Interest 28 (5% of debt at start of year)b
Pretax profit $ 282
Tax 113 (40% of pretax profit)
Net income $ 169

a Assets at the end of 2018 were $3,000,000.

b Debt at the end of 2018 was $560,000.

BALANCE SHEET, YEAR-END
(Figures in $ thousands)
Assets $ 3,200 Debt $ 560
Equity 2,640
Total $ 3,200 $ 3,200

a. What is the implied level of assets at the end of 2020? (Do not round your intermediate calculations. Enter your answer in thousands.)

b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in 2020? (Do not round your intermediate calculations. Enter your answer in thousands.)

c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2020? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Guide To Financial Instruments General Characteristics Of Bonds Chapter 1 General Characteristics Of Bonds

Authors: Professional Risk Managers' International Association (PRMIA)

1st Edition

0071731881, 9780071731881

More Books

Students also viewed these Finance questions

Question

Prepare an ID card of the continent Antarctica?

Answered: 1 week ago