In the previous problem, if there is no increase in sales and all other facts remain the same, what would be Eli's ending cash balance? What observation can be reached from these two problems? Show calculations to support your observations.

Previous Problem

Eli Lilly is very excited because sales for his nursery and plant company are expected to increase from $560,000 to $1,200,000 next year. Eli's net assets (assets -liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will begin the year with $120,000 in the bank and is already bragging about the Jaguar and luxury townhouse he will buy. Does his optimistic outlook for his cash position appear to be justified? Compute the likely cash balance for the end of the year.