The table given below summarizes the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 10% increase in sales and costs in 2023. 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. Sales Costs Interest Pretax profit Tax Net income Income Statement $ in thousands $ 1,100 (40% of average assets) a 825 30 245 (75% of sales) (5% of debt at start of year)b 98 (40% of pretax profit) $ 147 Assets at the end of 2021 were $2,640,000. bDebt at the end of 2021 was $600,000. Net assets Total Balance Sheet $ in thousands $ 2,860 Debt Equity $ 600 2,260 $ 2,860 Total $ 2,860 a. What is the implied level of assets at the end of 2023? Note: Enter your answer in dollars not in thousands. 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 2023? Assumes debt remains constant. Note: Do not round intermediate calculations. Enter your answer in dollars not in thousands. c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2023? Note: Enter your answer as a percent rounded to nearest whole number. a. Ending assets $ 3,190 b. External financing need S 248 c. Debt ratio 28 %
The table given below summarizes the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 10% increase in sales and costs in 2023. 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. Sales Costs Interest Pretax profit Tax Net income Income Statement $ in thousands $ 1,100 (40% of average assets) a 825 30 245 (75% of sales) (5% of debt at start of year)b 98 (40% of pretax profit) $ 147 Assets at the end of 2021 were $2,640,000. bDebt at the end of 2021 was $600,000. Net assets Total Balance Sheet $ in thousands $ 2,860 Debt Equity $ 600 2,260 $ 2,860 Total $ 2,860 a. What is the implied level of assets at the end of 2023? Note: Enter your answer in dollars not in thousands. 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 2023? Assumes debt remains constant. Note: Do not round intermediate calculations. Enter your answer in dollars not in thousands. c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2023? Note: Enter your answer as a percent rounded to nearest whole number. a. Ending assets $ 3,190 b. External financing need S 248 c. Debt ratio 28 %
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter9: Corporate Valuation And Financial Planning
Section: Chapter Questions
Problem 1P: Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2018 to $9.2 million...
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Transcribed Image Text:The table given below summarizes the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's
financial manager forecasts a 10% increase in sales and costs in 2023. 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
$ in thousands
(40% of average assets) a
Sales
Costs
$ 1,100
825
(75% of sales)
Interest
30
Pretax profit
Tax
Net income
245
(5% of debt at start of
year) b
98 (40% of pretax profit)
$ 147
a Assets at the end of 2021 were $2,640,000.
bDebt at the end of 2021 was $600,000.
Net assets
Total
Balance Sheet
$ in thousands
$ 2,860 Debt
Equity
$ 600
2,260
$ 2,860 Total
$ 2,860
a. What is the implied level of assets at the end of 2023?
Note: Enter your answer in dollars not in thousands.
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 2023?
Assumes debt remains constant.
Note: Do not round intermediate calculations. Enter your answer in dollars not in thousands.
c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2023?
Note: Enter your answer as a percent rounded to nearest whole number.
a. Ending assets
$
3,190
b. External financing need
$
248
c. Debt ratio
28 %
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