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 $68 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 68 Variable costs (80% of revenue) 1,440 Depreciation 80 Interest (8% of beginning-of-year debt) 24 Taxable income 188 Taxes (at 40%) 75 Net income $113 Dividends$75 Addition to retained earnings$38 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?

Information Provided: Increase in net fixed assets = $200,000 Revenues to Total assets = 1.50 Annual…

Answered: Required: a1. Produce an income…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

See similar textbooks

Related questions

Question

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 $68 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				68
Variable costs (80% of revenue)				1,440
Depreciation				80
Interest (8% of beginning-of-year debt)				24
Taxable income				188
Taxes (at 40%)				75
Net income			$	113
Dividends	$	75
Addition to retained earnings	$	38

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?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 6 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.