1. ) Create a financial model as if Clarkson will take the trade discounts. You should use the percent of sales method (as in body shope). The case provides estimates for the 1996 Sales, the loan terms, tax rates, etc. These items should be incorporated in to your model. Instead of using percent of sales to estimate payables trade creditors us equation (9) where DPO is replaced with 10. Clearly indicate how large of a loan Clarkson Lumber will need if it plans on taking advantage of all trade discounts.

2.) Create a financial model as if Clarkson will not take any of the trade discounts.

		Ratios (% of sales)			With discounts	Without discounts
Income Statement		1993	1994	1995	1996	1996
Net Sales (YOY growth)			0.19	0.30	5500.00	5500.00
Cost of Goods Sold:
Beginning Inventory		11.3%	9.7%	9.6%	10%
Purchases		75.6%	78.5%	79.2%	78%
Ending inventory		11.5%	12.4%	13.0%
Total Cost of Goods Sold		75.4%	75.8%	75.8%	76%
Gross profit		24.6%	24.2%	24.2%
Operating expenses		18.7%	18.3%	18.9%	18.7%
CEO salary		2.6%	2.3%	1.9%	90.00	90.00
Earnings before interest and taxes		3.3%	3.6%	3.4%
		0.0%	0.0%	0.0%
Interest expense		0.8%	1.2%	1.2%
Net income before income taxes		2.5%	2.4%	2.2%
Provision for income taxes		0.5%	0.5%	0.5%
Net income		2.1%	2.0%	1.7%
		Actual			With discounts	Without discounts
Income Statement		1993	1994	1995	1996	1996
Net Sales		$2,921	$3,477	$4,519	5500.00
Cost of Goods Sold:
Beginning Inventory		330	337	432	587.00
Purchases		2,209	2,729	3,579	4191.82
Ending inventory		337	432	587	618.82
Total Cost of Goods Sold		2,202	2,634	3,424	4160.00
Gross profit		719	843	1,095	1340.00
Operating expenses		547	637	855	1026.06
CEO salary		75	80	85	90.00
Earnings before interest and taxes		97	126	155	223.94
Interest expense		23	42	56	117.12
Net income before income taxes		74	84	99	106.82
Provision for income taxes		14	16	22	24.91
Net income		60	68	77	81.91
		Taxes		With discounts	Without discounts	With discounts	Without discounts
		Bracket	Rate	Taxable income	Taxable income	Tax	Tax
		0 to 50	15%	$ 50.00		$ 7.50
		51 to 75	25%	$ 25.00		$ 6.25
		76 to 100	34%	$ 25.00		$ 8.50
		101+	39%	$ 6.82		$ 2.66
			Total			$ 24.91