Problem 30-19 Long-term planning models 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 $ 1,700 (40% of average assets) a 1,275 (75% of sales) 60 365 (5% of debt at start of year)b 146 (40% of pretax profit) $ 219 a Assets at the end of 2021 were $4,080,000. bDebt at the end of 2021 was $1,200,000. Balance Sheet $ in thousands $ 4,420 Debt Equity Net assets $ 1,200 3,220 Total $ 4,420 Total $ 4,420 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 b. External financing need c. Debt ratio %
Problem 30-19 Long-term planning models 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 $ 1,700 (40% of average assets) a 1,275 (75% of sales) 60 365 (5% of debt at start of year)b 146 (40% of pretax profit) $ 219 a Assets at the end of 2021 were $4,080,000. bDebt at the end of 2021 was $1,200,000. Balance Sheet $ in thousands $ 4,420 Debt Equity Net assets $ 1,200 3,220 Total $ 4,420 Total $ 4,420 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 b. External financing need c. Debt ratio %
Chapter6: Managing Cash Flow
Section: Chapter Questions
Problem 4EP
Related questions
Question
None
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning