The following tables summarizes the 2019 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 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.
| INCOME STATEMENT, 2019 | ||||
| (Figures in $ thousands) | ||||
| Sales | $ | 1,000 | (40% of average assets)a | |
| Costs | 750 | (75% of sales) | ||
| Interest | 25 | (5% of debt at start of year)b | ||
| Pretax profit | $ | 225 | ||
| Tax | 90 | (40% of pretax profit) | ||
| Net income | $ | 135 | ||
a Assets at the end of 2018 were $2,400,000.
b Debt at the end of 2018 was $500,000.
| BALANCE SHEET, YEAR-END | ||||||||||
| (Figures in $ thousands) | ||||||||||
| Assets | $ | 2,600 | Debt | $ | 500 | |||||
| Equity | 2,100 | |||||||||
| Total | $ | 2,600 | $ | 2,600 | ||||||
a. What is the implied level of assets at the end of 2020? (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 2020? (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 2020? (Round your answer to 2 decimal places.)
