Candy's Shirts, Inc., has an opportunity to purchase 40,000 shirts with the logo of the 2000 Olympics in January 1998. Candy, who is not currently in business, is considering buying these shirts and then renting a display cart from which to sell these shirts (called a kiosk) in an Australian shopping mall. Based on the following information and estimates, Candy needs to decide if the business would be profitable:

1. Cost of the 40,000 shirts, all of which must be purchased in January 1998 , is \(\$ 440,000\).

2. Candy thinks it would take two years to sell all of the shirts. She estimates her sales at 25,000 shirts in 1998 and 15,000 shirts in 1999 .

3. Rent of the kiosk would be \(\$ 1,500\) per month in 1998 and \(\$ 1,600\) per month in 1999 .
4. Candy can buy some counters on which to display the merchandise for \(\$ 4,000\). She could sell the counters for \(\$ 500\) at the end of the second year.
5. Candy estimates the cost to decorate her kiosk would be \(\$ 2,500\).
6. Candy would hire employees and pay them \(\$ 1\) per shirt sold.
7. Candy plans to sell the shirts for \(\$ 17\) each.
8. Candy and her husband purchased \(\$ 100,000\) of capital stock in the business. Therefore, she plans to borrow \(\$ 400,000\) from their family banker. Interest expense on this loan will be \(\$ 52,000\) in 1998 and \(\$ 6,500\) in 1999 . Candy plans to repay \(\$ 300,000\) on January 2,1999 , and the remaining \(\$ 100,000\) on July 1,1999 .
9. Candy needs to rent some storage space because all 40,000 shirts cannot be stored at the kiosk. Storage space costs \(\$ 2,500\) per year.

a. Prepare estimated income statements for 1998 and 1999 for Candy's business. Does it appear that the business will be profitable?

b. Will Candy have the cash available to pay the bank loan as she planned?