Reference no: EM133205370

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 3 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 20% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $ 56000 and variable costs at 80% of revenue. The company's policy is to pay out one-half of net income as dividends and to maintain a book debt ratio of 25% of total capital.

INCOME STATEMENT, 2019

(Figures in $ thousands)

Revenue   $1,800

Fixed costs    56

Variable costs (70% of revenue)    1,260

Depreciation    80 Interest (8% of beginning-of-year debt)    24

Taxable income    200

Taxes (at 40%)    80

Net income   $120

Dividends$ 80

Addition to retained earnings $ 40

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. Income statement for 2020. Assume that net working capital will equal 50% of fixed assets.

a2. 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. What would a pro forma balance sheet for 2020 look like?

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