Prepare an completed pro forma balance sheet

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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 $400,000 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 $96 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 $2,760

Fixed costs 96

Variable costs (80% of revenue) 2,208

Depreciation 160

Interest (8% of beginning-of-year debt) 40

Taxable income 256 Taxes (at 40%) 102

Net income $154

Dividends$103

Addition to retained earnings$51

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

Assets Net working capital$240

Fixed assets 1,600

Total assets$1,840

Liabilities and shareholders' equity Debt$500

Equity 1,340

Total liabilities and shareholders' equity$1,840

Required:

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

problem a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets.

problem b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare an completed pro forma balance sheet for 2020.

problem c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2022?

Reference no: EM132781411

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