The following tables summarize the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 15% increase in sales and costs in 2023. The ratio of sales to average assets is expected to remain at 0.50. Interest is forecasted at 3% of debt at the start of the year. Sales. Costs Interest Pretax profit Tax Net income Assets. INCOME STATEMENT, 2022 (Figures in $ thousands) $2,250 1,125 21 $ 1,104 221 $883 a Assets at the end of 2021 were $4,400,000. b Debt at the end of 2021 was $700,000. Total (50% of average assets) a (50% of sales) (3% of debt at (20% of pretax profit) BALANCE SHEET, YEAR-END 2022 (Figures in $ thousands) $ 4,600 $4,600 Debt Equity start of year)b $ 700 3,900 $4,600 a. What is the implied level of assets at the end of 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands. b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands. c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Round your answer to 2 decimal places.
The following tables summarize the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial manager forecasts a 15% increase in sales and costs in 2023. The ratio of sales to average assets is expected to remain at 0.50. Interest is forecasted at 3% of debt at the start of the year. Sales. Costs Interest Pretax profit Tax Net income Assets. INCOME STATEMENT, 2022 (Figures in $ thousands) $2,250 1,125 21 $ 1,104 221 $883 a Assets at the end of 2021 were $4,400,000. b Debt at the end of 2021 was $700,000. Total (50% of average assets) a (50% of sales) (3% of debt at (20% of pretax profit) BALANCE SHEET, YEAR-END 2022 (Figures in $ thousands) $ 4,600 $4,600 Debt Equity start of year)b $ 700 3,900 $4,600 a. What is the implied level of assets at the end of 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands. b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands. c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2023? Note: Round your intermediate calculations to the nearest whole dollar amount. Round your answer to 2 decimal places.
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 7P
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Question
Vijay
Transcribed Image Text:The following tables summarize the 2022 income statement and end-year balance sheet of Drake's Bowling Alleys. Drake's financial
manager forecasts a 15% increase in sales and costs in 2023. The ratio of sales to average assets is expected to remain at 0.50.
Interest is forecasted at 3% of debt at the start of the year.
Sales
Costs
Interest
Pretax profit
Tax
Net income
Assets
INCOME STATEMENT, 2022
(Figures in $ thousands)
$ 2,250
1,125
21
$ 1,104
221
$ 883
a Assets at the end of 2021 were $4,400,000.
b Debt at the end of 2021 was $700,000.
Total
(50% of average assets) a
(50% of sales)
(3% of debt at start of year) b
(20% of pretax profit)
BALANCE SHEET, YEAR-END 2022
(Figures in $ thousands)
$ 4,600
$ 4,600
Debt
Equity
$700
3,900
$4,600
a. What is the implied level of assets at the end of 2023?
Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands.
b. If the company pays out 50% of net income as dividends, how much cash will Drake's need to raise in the capital markets in
2023?
Note: Round your intermediate calculations to the nearest whole dollar amount. Enter your answer in thousands.
c. If Drake's is unwilling to make an equity issue, what will be the debt ratio at the end of 2023?
Note: Round your intermediate calculations to the nearest whole dollar amount. Round your answer to 2 decimal places.
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