(a)

Calculate the monthly growth rate of sales that can be sustained by a firm without access to

external capital, a 20% gross margin (Cost of Goods Sold = 80% of revenue) and the following

working capital policies: all expenses paid upfront, 60% of revenues collected this month, the

balance in 1 month, 3 months of inventory is kept on hand.

b)

Your firm maintains a line of credit (no standby fee) on which it pays a monthly interest of 0.45%.

If your suppliers offer you a 1% discount for payment within 20 days (their usual terms are net

60), should you take the trade credit or finance your purchases with the line of credit