1. The table given below summarizes the 2019 income statement and end-year balance sheet of...
80.2K
Verified Solution
Link Copied!
Question
Accounting
1. The table given below 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.
At the end of 2018 debt was $530,000 and assets were $2,700,000. Income Statement $ in thousands Sales $ 1,120 (40% of average assets) Costs 840 (75% of sales) Interest 26 (5% of debt at start of year) Pretax profit 254 Tax 101 (40% of pretax profit) Net income $ 152.
Balance Sheet $ in thousands Net assets $ 2,900 Debt $ 530 Equity 2,370 Total $ 2900 Total $ 2900
a. What is the expected level of assets at the end of 2020?
b. If the company pays out 50% of net income as dividends, how much cash will Drake need to raise in the capital markets in 2020? Assumes debt remains constant.
c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2020?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
