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Answer the questions based upon the following information: AKL has decided to start a home reno business with a 20,000 investment in month 1. AKL

Answer the questions based upon the following information:

AKL has decided to start a home reno business with a 20,000 investment in month 1. AKL expects to gain 2 projects per month (starting at the first day of the month) for the first 6 months of business; each project will generate $5,000 of sales. Customers will be expected to pay 25% of the price as a deposit with the balance on completion. Each project is expected to last one month.

The main costs associated with the startup are:

Equipment $2,500 (month 1) & $9,500 (month 4)

Marketing $500 per month

Legal and accounting costs $1,250 (month 1)

Project materials $1,500 per project (i.e. $3,000 per month). It is assumed that suppliers will allow 30 days to pay for these costs

Subcontracted labour (other tradesmen) $4,000 per month. These will be paid in the month incurred.

AKL will pay herself a salary of $2,000 each per month while the business is established.

Other general costs of $500 cash per month have been assumed

a) Develop a monthly cash flow for the first 6 months of the business. Note any concerns with the cash flow forecast.

b) A cash flow statement shows negative from operating activities but shows positive on cash at the end of the period. Is that possible? Explain. Examples are always a good way to illustrate the concept.

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