Q1: Will the proposed max loan of $350,000 be sufficient to fund the firm in 2007 if Jones continues with their current payment practices?

1)Use 2006 ratios for your calculations

a.Assume that Mr. Jones believes to meet daily requirements he must maintain at least 1% of cash relative to sales

b.Calculate depreciation

i.Explanation:Paolo always includes a line for depreciation in his examples, this number is important later when we calculate free cash flow. In the case, you are only given COGS which does not itemize depreciation. (Given COGS = True COGS + depreciation). We would like to separate out the depreciation so that we can make logical assumptions about it and use it in calculations later. By looking at the balance sheet you can use the change in accumulated depreciation to "back out" what the depreciation was. (Given COGS [year t] = True COGS + (accum dep [year t] - accum dep [year t-1]. You report what you calculate for depreciation on a new line in your income statement and then report only the updated True COGS. Your net income should remain the same.

2)For any analysis going forward, use NET fixed assets.You can completely ignore (to the point of not including it in your tables) the accumulated depreciation and gross fixed asset lines (after completing #5 above).

3)Total current assets Q1 of 2007 = 755 which does not equal 32+290+432 = 754. So you can assume cash =33, thus the equality is true: 755=33+290+432.

Exhibit 1 : Income Statements ( thousands of dollars )* for Years Ending December 31 , 2001- 2006 , and for the first quarter 2007 Q1 2004 2005 2006 2007 a Net sales $1 , 624 $1, 916 $2, 242 $608 Cost of goods sold $1 , 304 $1 , 535 $1 , 818 $499 Gross profit on sales $320 $381 $424 $109 Operating expense " $272 $307 $347 $94 Interest expense* $27 $30 $31 85 Net income before taxes $21 $44 $46 $7 Provision for income taxes $7 $15 $16 $2 Net income* $14 $29 $30 $5 Exhibit 2: Balance Sheet ( thousands of dollars ) as of December 31 , 2004 - 2006 and March 31 , 2007 Q1 2004 2005 20:06 2007 Cash $15 $53 $23 $33 Accounts receivable $187 $231 $264 $290 Inventory* $243 $278 $379 $432 Total Current Assets $475 $562 $666 $755 Property & equipment $187 $202 $252 $252 Accumulated depreciation* ( 574 ) (599 ) ( $134 ) $ 1 42 ) Total PP&E , net $113 $103 $118 $110 Total Assets $588 $665 $784 $865 Accounts payable* $36 $42 $120 $203 Line of credit payable $149 $214 $249 $250 Accrued expenses $13 $14 $14 $12 Long term debt , current portion $24 524 $24 $24 Total Current liabilities $222 $294 $407 $489 Long-term debt $182 $134 $128 Total liabilities $404 $452 $541 $617 Net worth $184 $213 $243 $248 Total Liabilities and Net Worth $588 $665 $784 $865