1.  Forecast Jones' 2007 financial statements and "External Funds Needed (EFN)" with the following assumptions:

• It is December 31, 2006 (so ignore 2007 first quarter case data)
• Sales will increase 20% (1.20) to $2.7 million
• The following items will also increase 20%:
• cost of goods sold and operating expense (no purchase discounts)
• current assets
• accounts payable and accrued expenses
• Interest expense and net fixed assets (property & equipment) will not change
• The tax rate is 35%
• The $249,000 bank loan at the end of 2006 will be paid off from the new credit line
• Long-term debt will be paid down another $24,000
• All earnings will be retained in the business

1. Forecasted "External Funds Needed (EFN)" With Purchase Discounts: Change the forecast to assume 2% purchase discounts are taken (carefully consider the effect of this assumption on cost of sales, inventory and accounts payable).

1. Should the bank grant Jones the $350,000 line of credit? Why or why not?

1. Identify the pros and cons of three (3) reasonable alternatives Jones should consider. Recommend and explain your choices.