How to Project a pro-forma income statement, balance sheet, and statement of cash inflows and outflows for fiscal 1997 and 1998 for ONLY the new location, using the information presented.Present the financials in Cayman Island dollars; do not translate into US dollars.

OPERATIONAL ISSUES Although there is some uncertainty in the incremental business the new dive shop would generate, Andy has obtained data that can help with the projections. He contacted the local Department of Tourism and obtained statistical data for a dive shop on the beach outside the Radisson Resort, which is similar to the proposed site. Using those statistics, he estimated monthly sales and profit from operations (provided in Exhibit 3 along with a trend line) for the dive and watersports facility during the last three years. Given Andy's experience with the business, he feels confident that the trend established from the data at the Radisson dive shop would be representative of business at the new Holiday Inn location. Adjustments for the difference in size of the hotels (Radisson Resort has 330 rooms and the Holiday Inn has 230 rooms) would, of course, have to be made in order to get accurate annualized projections of sales revenue and profit from operations. In addition, Andy knows that it takes approximately one year for a new shop to reach its full sales potential. From recent experience in opening new dive shops for Don Foster's Dive and in talking to competitors along 7 Mile Beach, Andy believes that revenue and profit from operations at the proposed site for the first year will be 50 percent of subsequent figures and operating expenses (mostly variable) will be ten times as large as administrative expenses on the new facility for theAICPA Case Development Program Case No. 97-01: Should the Scuba Business Dive Into the Expansion .3 foreseeable future. All other previously existing facilities at Don Foster's Dive are expected to yield about the same revenue, expenses and income as in 1996. The additional investment required by Don Foster's Dive to open the new shop includes $31,000 for building improvements and signs; $ 17,500 for waverunners, aqua trikes, sailboats, kayaks, and floating chair mats; $10,000 for additional scuba equipment; $20,000 for increased retail inventory and $5,000 for additional computer equipment. All of the investments are anticipated to be financed by a long-term bank loan which together with existing long-term bank loans will be repaid in equal installments of $4,008 per month (exclusive of interest). The existing note payable is also reduced by monthly payments of $9,070 (exclusive of interest). The interest cost on both debt instruments is part of the administrative expense component on the income statement. If the purchases are made, the total depreciation expense (included with operating expenses) using a straight line method is expected to increase by $15,000 to about $65,000 per year on all fixed assets (all figures are stated in CI dollars). EXHIBIT 1 DON FOSTER'S DIVE CAYMAN, LTD. INCOME STATEMENTS (UNAUDITED) FOR THE YEAR ENDED MAY 31 1996 1995 1994 Sales Revenue $ 2,376,874 $ 2,479,367 $ 2,556,897 Operating Expenses $(2,204,865) $(2,162,768) $(2,010,180) Profit from Operations $ 172,009 $ 316,599 $ 546,717 Administrative Expenses $ (257,132) $ (295,043) $ (331,470) Profit Before Gains/Losses $ (85,123) $ 21,556 $ 215,247 Gain on Sale of Fixed Assets 1,824 FA EA (3,799) Gain on Currency Exchange 16,018 18,186 0 10.437 Profit (Loss) for the year (67,281) $ 35,943 $ 225,684 Note: Statements are reported in Cayman Island (CI) Dollars (Fixed Rate of US $1.00 = CI $.82)EXHIBIT 2 DON FOSTER'S DIVE CAYMAN LTD. BALANCE SHEETS (UNAUDITED) MAY 31 1996 1995 1994 Current Assets: Cash 1,038 1,004 1,701 Accounts Receivable 54,744 67,547 49,502 Inventory 38,103 43,860 46,341 Total Current Assets 93,885 112,411 97,544 Non-Current Assets: Investments $ 3,000 $ 167,000 $ 167,000 Fixed Assets $1,220,097 $1,270,631 $1,341,818 Goodwill $ 384,950 $ 384,950 $ 384,950 Total Non-Current Assets $1,608,047 $1,822,581 $1,893,768 Total Assets $1,701,932 $1,934,992 $1,991,312 Current Liabilities: Short-term Bank Loan 93,608 140,293 122,941 Customer Deposits 46,913 69,349 36,984 Accounts Payable 158,437 113,293 141,415 Total Current Liabilities 298,958 322,935 301,340 Long-term Liabilities: Long-term Bank Loan $ 156,958 $ 189,910 $ 264,953 Note Payable $ 870,741 $ 979,591 $1,078,123 Total Long-term Liabilities $1,027,699 $1,169,501 $1,343,076 Shareholders' Equity: Capital Stock 82 82 82 Paid-In Capital 223,094 223,094 163,377 Retained Earnings $ 152,099 219,380 183,437 Total Equity $ 375,275 $442,556 $ 346,896 Total Liabilities and Equity $1,701,932 $1,934,992 $1,991,312 Note: Statements are reported in Cayman Island (CI) Dollars (Fixed Rate of US $1.00 = CI $.82)