1. Do you agree with Mr. Cartwrights conclusion that a $465,000 line of credit would more than meet his foreseeable funding needs? How much will he need to borrow in order to finance his expected sales over the next few years?

1. Assume that Sales reach $3.6M in 2004 and then increase at the rate of 25% per year until 2007.

We will need to estimate the size of the EFN (bank loan) for each year. To do this, we will proceed as follows:

• Forecast assets;
• Forecast non-bank liabilities, including Net Worth;
• The difference gives you the EFN (Bank debt plug);
• With this level of Bank debt, is interest expense what was assumed? If yes, stop. Otherwise, repeat until you converge.

Note: no more than 3 repetitions will be necessary.

2. Repeat the same procedures as above with one change: Cartwright Lumber will pay its accounts payable in 10 days to take advantage of the purchase discount.