Case Study: Financial Models for Dynastatics Corp.

The following tables contain financial statements for Dynastatics Corpora$-$

tion. Although the company has not been growing, it now plans to expand

and will increase net fixed assets $($that is$,$ assets net of depreciation$)$ by

$$200,000$ per year for the next $5$ years and forecasts that the ratio of reve$-$

nues to total assets will remain at $1\mathrm{.}50.$ Annual depreciation is $10\%$ of net

fixed assets at the end of the year. Fixed costs are expectd to remain at

$$56,000$ 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 $25\%$ of total capital.

INCOME STATEMENT, $2012$

$($figures in thousands of dollars$)$

BALANCE SHEET, YEAR$-$END $2012$

$($figures in thousands of dollars$)$

a$.$ Produce a set of financial statements for $2013.$ Assume that net

working capital will equal $50\%$ of fixed assets. How much external

financing will be required?

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 $2013.$

What is the projected debt ratio for $2013?$