The owner of Roadkill Recycling Company (a company that publishes “kitchen-tested”

recipes) has come to your bank for a loan. He states: “In each of the last two years our cash has gone down. This year we need to increase our cash by $7,000 so that we have a

$20,000 cash balance at year end. We have never borrowed any money on a long-term basis and are reluctant to do so. However, we definitely need to purchase some new, more advanced equipment to replace the old equipment we are selling this year. We also want to invest in the stock market. Given our expected net income and the money we will receive from our depreciation expense, | estimate we will have to borrow $12,000, based on the following schedule.”  plo47 Schedule of Cash Flows for the Year 2001 Inflows of cash:
EB SMACTIONSTT OMI CUSLOMIEN Scrercarccnireeterrietscetanerta: «ccttivecencsvertens sovcerererseceees $ 33,000 LECH ECEIONS TOI HICOESC er seat rates aera ee taeta te taaeb tes Soeveareet steam aettes 2,000 Other Operating PECCIPts Le :s-.rcscscseecvercussenscsencceasconsscnsecnsscrcecsesscesscsnssensestoesen 4,000 Receipt from sale of Old EqUIPMENE ...........csseecssucersseccnneccsneccsntecsnteeteneees 8,000 Depreciation Expense ...cs.ssssrsecssaessscssasessnnseseorsncsecrnsesoonsnenscresssosenqaasssvascsosonses 6,000 Barba loamp(CStupated) eer. tese.c ses rcasssepsset.rvtneseocee-arareetecsrantsseneegitiete tees oot 12,000 STEER GURY CLCOVU Reser eetaesec tae ee seas cis sua ae esses cass us suits sa eoas sovae cxcme buen easbneatipaes $ 65,000 Outflows of cash:
Purchase Of CqUIPMENE........:.-ssssssessssssbeerseersescncesnees $(20,000)
Salaiescreer rere teste seirerOther operating PayMENts.......cssssseesscersnseecserssneeeeee (3,000)
Payments to SUPPIiers ......ssssseccssssecsssesessseesssssscsssess (7,000)
SE eal COLAGLI OVS caren rence ence ov cupinadedh tui Uda TRI oDp av iueaia de stanton ob Gstssorteandoks (58,000)
PCH ASE IIT CASIV I fee iacass caszslvecassgassescdeacecaesivadeasSMipehines Maas saaosanat capt at esepiiztessséss $ 7,000 The owner explains that the company will purchase $5,000 of office furniture from him.
The payment of $5,000 from the company to him for the office equipment was not included ~
in the schedule of cash flows because it would involve only a transaction between the company and him and would be of no interest to “outsiders.” The owner also states that if his figures are “off a little bit,’ the most the company wants to borrow is $16,000. You determine that the amounts he has listed for each item are correct, except the bank loan.

Required: (1) Prepare a projected cash flow statement that shows the necessary bank loan for Roadkill Recycling Company to increase cash by $7,000.
(2) Explain to the president why his $12,000 estimate of the bank loan is incorrect.
(3) Suggest ways to reduce the necessary bank loan and still increase cash.
(4) Make a list of questions you would like the owner to answer before you decide whether or not to make a loan to Roadkill Recycling Company.