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 5 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 $60 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 20% of total capital. INCOME STATEMENT, 2019(Figures in $ thousands)Revenue $1,800 Fixed costs 60 Variable costs (80% of revenue) 1,440 Depreciation 80 Interest (8% of beginning-of-year debt) 24 Taxable income 196 Taxes (at 40%) 78 Net income $118 Dividends$79 Addition to retained earnings$39 BALANCE SHEET, YEAR-END(Figures in $ thousands) 2019Assets 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 Required:a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.a2. Produce a balance sheet for 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 a completed pro forma balance sheet for 2020.c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020? The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, It nowplans to expand and will increase net fixed assets (1.e., assets net of depreciation) by $200,000 per year for the next 5 years, and itforecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10% of net fixed assets at the beginning ofthe year. Flxed costs are expected to remain at $60 and variable costs at 80% of revenue. The company's policy Is to pay out two-thirds of net income as dividends and to maintaln a book debt ratio of 20% of total capital.INCOME STATEMENT, 2019(Figures in $ thousands)Revenue$ 1,800Fixed costsVariable costs (80% of revenue)DepreciationInterest (8% of beginning-of-year debt)Taxable income601,4408024196Taxes (at 40%)Net incomeDividends78118$ 79$ 39Addition to retained earningsBALANCE SHEET, YEAR-END(Figures in $ thousands)2019AssetsNet working capitalFixed assets400800Total assets$1, 200Liabilities and shareholders' equityDebt300EquityTotal liabilities and shareholders' equity900S1,200Requlred:a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.a2. Produce a balance sheet for 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 a completed pro forma balance sheet for2020.C. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?

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 (1.e., assets net of depreciation) by $200,000 per year for the next 5 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 $60 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 20% of total capital. INCOME STATEMENT, 2019 (Figures in $ thousands) Revenue $1,800 Fixed costs 60 Variable costs (80% of revenue) Depreciation Interest (8% of beginning-of-year debt) 1,440 80 24 Taxable income 196 Taxes (at 40%) Net income 78 118 $ 79 $ 39 Dividends Addition to retained earnings BALANCE SHEET, YEAR-END (Figures in $ thousands) 2019 Assets Net working capital Fixed assets 400 800 $1, 200 Total assets Liabilities and shareholders' equity Debt 300 Equity Total liabilities and shareholders' equity 900 $1,200 Required: a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets. a2. Produce a balance sheet for 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 a completed pro forma balance sheet for 2020. C. Assume that the balancing item is debt and that no equity is to be Issued, what is the projected debt ratio for 2020?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 5 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 $60 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 20% of total capital.

INCOME STATEMENT, 2019 (Figures in $ thousands)
Revenue			$	1,800
Fixed costs				60
Variable costs (80% of revenue)				1,440
Depreciation				80
Interest (8% of beginning-of-year debt)				24
Taxable income				196
Taxes (at 40%)				78
Net income			$	118
Dividends	$	79
Addition to retained earnings	$	39

BALANCE SHEET, YEAR-END (Figures in $ thousands)
	2019
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

Required:

a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.

a2. Produce a balance sheet for 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 a completed pro forma balance sheet for 2020.

c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?

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 (1.e., assets net of depreciation) by $200,000 per year for the next 5 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. Flxed costs are expected to remain at $60 and variable costs at 80% of revenue. The company's policy Is to pay out two-
thirds of net income as dividends and to maintaln a book debt ratio of 20% of total capital.
INCOME STATEMENT, 2019
(Figures in $ thousands)
Revenue
$ 1,800
Fixed costs
Variable costs (80% of revenue)
Depreciation
Interest (8% of beginning-of-year debt)
Taxable income
60
1,440
80
24
196
Taxes (at 40%)
Net income
Dividends
78
118
$ 79
$ 39
Addition to retained earnings
BALANCE SHEET, YEAR-END
(Figures in $ thousands)
2019
Assets
Net working capital
Fixed assets
400
800
Total assets
$1, 200
Liabilities and shareholders' equity
Debt
300
Equity
Total liabilities and shareholders' equity
900
S1,200
Requlred:
a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.
a2. Produce a balance sheet for 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 a completed pro forma balance sheet for
2020.
C. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2020?

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