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 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, 2017

(Figures in $ thousands)

Revenue ..................................................... $1,800

Fixed costs ........................................................ 56

Variable costs (80% of revenue) ............... 1,440

Depreciation ..................................................... 80

Interest (8% of beginning-of-year debt) ........ 24

Taxable income .............................................. 200

Taxes (at 40%) .................................................. 80

Net income .................................................. $ 120

Dividends ............................................. $80 ..........

Addition to retained earnings ............ $40 .........

BALANCE SHEET, YEAR-END

(Figures in $ thousands)

......................................................................................... 2017

Assets ......................................................................................

Net working capital ...................................................... $400

Fixed assets ..................................................................... 800

Total assets ................................................................. $1,200

Liabilities and shareholders' equity .....................................

Debt ................................................................................ $300

Equity ................................................................................ 900

Total liabilities and shareholders' equity ................ $1,200

a. Produce income statements and balance sheets for 2018 through 2020. 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 2018 through 2020.

c. What is the projected debt ratio for 2020?