After being in business for six years, Graham Mason, owner of a small retail store, is considering buying a new information system that would provide him with better operating and financial information. Graham feels that the new system would give him better control over his inventories so that he would be able to manage his purchases more wisely. He is also interested in renovating his store.
After going through some detailed calculations, he determines that he would have to invest around $250,000 in early January 2014. Graham is considering borrowing some money from the bank. However, before meeting his banker, he asks his accountant to figure out how much cash he could squeeze from his operations (internally) to help him finance his two projects.
Graham feels that he can improve his average collection period to 40 days and turn his inventory three times a year by December 31, 2013 (industry averages). With the following partial information, calculate how much cash Graham could raise internally by December 2013.

Graham Mason would be able to generate $185,200 internally by December 31, 2013 to finance the two projects that would cost him $250,000. He would therefore have to raise the difference, or $64,800, from the lenders.

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Partial Statement of Financial Position As at December 31, 2013 1n Inventories Trade receivables Cash Total 0,000 rade and other payables 100,000 Notes payable 20,000 Future taxes payable 320,00 Total 150,000 50,000 0,000 250,000 Staternent of Income For the year ended December 31, 2013 (in $) Revenue Cost of sales Gross profit Other expenses Depreciation/amortization Total expenses Profit before taxes Income tax expense Profit for the year 500,000 300,000) (135,000) 200,000 15 150, 50,000 25,000