Jen and Larrys Frozen Yogurt Company (Revisited) In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larrys Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2016 and were es- timated at $1.2 million in 2017. Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larrys salaries and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2017. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2017. An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the ren- ovation of an old warehouse building in lower downtown (known as LoDo) of $450,000 occurred at the beginning of 2016 along with $50,000 being invested in inventories. An additional equipment investment of $100,000 was estimated to be needed at the beginning of 2017 to make the amount of yogurt forecasted to be sold in 2017. Depreciation expenses were expected to be $50,000 in 2017, and interest expenses were estimated at $15,000. The tax rate was expected to be 25 percent of taxable income.

Q) If inventories are expected to turn over ten times a year (based on cost of goods sold), what will be the ventures av- erage inventories balance next year if sales are $1.2 million? How much might the venture be able to borrow if a lender typically lends an amount equal to 50 percent of the average inventories balance? If the borrowing rate is 12 percent, how much dollar amount of interest would have to be paid on the loan?