Part B Harry, meanwhile, had also been thinking about the deal. He realized that his time constraints prevented him from operating the store effectively and that the Halls were the most likely candidates to purchase it. When Lawrence nished outlining his problem, Harry was sympathetic. "Perhaps I can help with the financing," he offered. "Let's look at the inventory rst. Instead of an immediate payment of $15,000. pay me $5000 now and the balance at the end of the rst year. That will reduce your shortfall to $43,000. 1 can also nance that amount by taking a second mortgage on your home. You can pay me $6000 at the end of each year." The Halls were encouraged by Harry's offer, but Danielle still had reservations. "We still haven't determined whether there will be enough prot to provide you with a good salary and make all of these payments." "Well," replied Lawrence, "I should be able to increase sales by at least 20% because of my connections in the photography business. But I'll have to increase my advertising by about $10,000 to do this. There is a new store opening in the same shopping centre as ours within a few weeks. but I don't think that this will affect my sales level. And me being at the store regularly should help restore the gross margin back to 61% of sales. If I continue to do freelance photography I won't need much salary. In fact, I should be able to reduce wages expense by about $5000. Royalties will remain at 8% of sales. and because we are assuming Harry's lease, which has ve more years to run, rent will be unchanged. Travel and other operating costs will also remain unchanged. 1Ill'e'll have to recalculate the new annual debt repayments for the $32,000 from the bank over 10 years and $5,000 per year for the $43,000 loan from Harry."