Problems Consider the financial statements for Ace Inc. for questions 1 to 8: Ace Inc. Income Statements ($000s) Year 1 Year 2 Sales $250,000 $290,000 Cost of goods sold 165,000 173,000 Gross margin 85,000 117,000 Selling & admin expenses 68,000 76,000 Depreciation 13.000 14.000 Operating income 4,000 27,000 Interest expense 900 800 Profit before tax 3,100 26,200 Income tax (at 35%) 1,085 9,170 Net income $2.015 $17,030 Common dividend paid $1,000 $1,000 Ace Inc. Balance Sheets at December 31 ($000s) Year 1 Year 2 Cash $2,400 $2,800 Accounts receivable 30,000 32,000 Inventories 18,000 20.000 Total current assets 50,400 54,800 Net property and equipment 20,000 24,000 Total assets $70,400 $78,800 Notes payable: Bank $20,185 $12.555 Accounts payable 14,000 16,000 Total current liabilities 34,185 28,555 Long-term debt 22,000 20,000 Common equity 14.215 30.245 Total liabilities and equity $70,400 $78.800 1. Identify the sources of cash and uses of cash for each year. Create a sources and uses statement. 2. Estimate the age of inventory for each year. 3. Estimate the age of accounts receivable for each year. 4. Estimate the age of accounts payable for each year. 5. Estimate the working capital gap for each year. 6. Suppose year 2's days of inventory were reduced to 35. How much cash would be freed up? 7. Suppose year 2's days of receivables were reduced to 35. How much cash would be freed up? 8. Suppose year 2's days of payables were increased to 40. How much cash would be freed up? 9. What are the three methods by which a firm can improve its working capital gap? 10. From a lender's (or an investor's) perspective, which is safer and why: commercial paper or banker's acceptances