1. Complete Beginning Balances column for the balance sheet.

Assume you have cash to invest in your business of $162,000 and are able to raise an additional $200,000 through a bank loan. Before you open for business you purchase $150,000 in Fixed Assets and $70,000 in inventory of which $35,000 is carried by the vendor in Accounts payable.

2. Complete the Balance Sheet for years 1 through 3 and the Income Statement & Valuation worksheet. Indicate the estimated value of the business at the end of year 3.

Incorporate the following assumptions into your projections:

Balance Sheet Assumptions:

Your cash balance increases by 5% each year.

The bank charges 7% simple interest on the loan. Along with interest payments, the bank also requires principal payments at the end of year equal to 5% of the beginning year balance.

Inventory increases by 15% each year.

90% of your sales are booked on account and your average collection period is 60 days. Accordingly, your year-end Accounts Receivable balance is 15% of annual revenues (using a 360- day year).

Your Net fixed assets increase 4% each year.

Accounts payable are 50% of inventory.

You do not pay dividends and all earnings are retained.

Owners Equity is the balance between total assets minus liabilities each year. This is a privately held company 100% owner by you and your close partners.

Income Statement Assumptions:

Sales in year 1 are projected to be $450,000 and you expect 15% growth in sales in year 2, and 20% in year 3.

Cost of Goods sold are 55% of sales.

Aggregate Operating Expenses are projected at 35% of sales. You will need to split the aggregate amount under the various operating expense accounts on a reasonable rationale for your type of business.

Taxes are 21% of Net income before taxes.

Valuation Assumptions:

A business of the nature you are proposing is reasonably valued using Earnings Before Taxes Depreciation and Amortization (EBITDA) times a multiple of 5.

BALANCE SHEET Income Statement \begin{tabular}{lccc} & Year1Actual & Year2Projected & Year3Projected \\ \cline { 2 - 4 } & Sales & & \\ Cost of Goods Sold & & & \\ Gross Profit & & & \end{tabular} Operating Expenses Marketing Staffing/Benefits Supplies Legal Regulatory Insurance Rent Depreciation Phone Internet Utilities Total Operating Expenses Operating Profit Interest Expense Net Income Before Taxes Taxes Net Income After Taxes EBITDA Multiple Value