Emerald City Umbrellas sells umbrellas and rain gear in Seattle, so its sales are fairly level across the year. However, it is branching out to other markets where it expects demand to vary across the year. It expects sales in its new market of:

It carries inventory equal to 20% of next quarter’s sales, has accounts payable of 10% of next quarter’s sales, and accounts receivable of 20% of this quarter’s sales.
a. Assume that it starts with $4000 in inventory, $2000 in accounts payable, and no accounts receivable for the new market. Forecast its working capital levels and changes over the four quarters.
b. If Emerald City Umbrellas has net income equal to 20% of sales, what will be its financing needs over the quarter?

Transcribed Image Text:

Q1 $20,000 02 $50,000 Q3 $10,000 Q4 $50,000