ASSUMPTIONS:

Initial investment (made on January 1 when company begins operations) = $550,000 Selling price = $55 per unit

COGS = variable cost = $35 per unit

Fixed costs = $30,000 per month

Credit policy = net 45 days (assume all sales are on credit)

Inventory policy = 20-day supply (Note that this means inventory at the end of the month will be 2/3rds of sales for that month. Thus, given that January sales = 3,000 units (see below), January ending inventory will be 2,000 units).

Inventory carried at cost (i.e., at $35 per unit)

All bills are paid immediately (this implies that accounts payable and accruals = $0) Dividends = 50% of monthly net income

There are 30 days in every month

All revenues, costs, cash inflows and cash outflows are evenly distributed through the month If additional funds are needed, these will be in the form of debt (i.e., bank loans). The company will borrow money if cash = $0 on the balance sheet. The amount borrowed will be what is necessary to balance the balance sheet with cash = $0.

Monthly Sales: January = 3,000 units, February = 6,000 units, March = 9,000 units

1. January net income = __________

2. January addition to retained earnings = __________

3. January cash = __________

4. January total assets = __________

5. January net cash flow = __________

6. February net income = __________

7. February addition to retained earnings = __________

8. February cash = __________

9. February total assets = __________

10. February net cash flow = __________

11. March net income = __________

12. March addition to retained earnings = __________

13. March cash = __________

14. March total assets = __________

15. March net cash flow = __________