Prepare a simple model using a top-down approach for the following case:

Titos Motorcycle will like to buy a Dyno Tuning Machine for his shop. Before they can be approved for a loan the bank asks for the financial statements. The loan officer would like to see a cash flow forecast for the next five years. Tito asks you for help to prepare the statement. Use the following information:

Assumptions:

Growth rate 2% for year 1 to 3, 3% for year 4 and 5

Inflation rate 2.3% per year

Titos Motorcycles Income Statement For the Month Ended November 30, 2017

Revenues

Service revenue........................................................................................ $42,5 00 Expenses Advertising expense................................................................................. $6,5 00 Utilities expense.................................................................................... $ 4,500 Supplies expense....................................................................................... 350 Depreciation expense................................................................................ 2,000 Interest expense........................................................................................ 500

13,850 Net income..........................................................................................................

$28,650

Titos Motorcycles Balance Sheet November 30, 2017 Assets

Cash....................................................................................................... $ 24,500 Accounts receivable.................................................................................... 3,000 Supplies....................................................................................................... 900 Prepaid insurance....................................................................................... 1,320 Equipment................................................................................................... $120,000 Less: Accumulated depreciationequipment........................................ 2,000

118,000 Total assets............................................................................................ $147,720

Liabilities and Owners Equity

Liabilities

Notes payable........................................................................................ $20,000

Accounts payable..................................................................................

5,000 Interest payable....................................................................................

500 Total liabilities................................................................................

25,500

Owners equity

Owners capital.....................................................................................

122,220 Total liabilities and owners equity..............................................

$147,720

Prepare a cash flow forecast model using the above information and assumptions. Create an input area where Tito can use the scenario and sensitivity analysis. Bring your forecast to class and be prepared to discuss your findings.