1. Returning to Checkpay, Inc., Johnny has discovered that his original projections of expenses were based upon only the first $100,000 of loans. Assuming that the interest rate is 10 percent and that Johnny is allowed to borrow more money as it is needed, how much will he have needed to borrow by the end of the third year to meet his growth goals and to pay the interest? You may assume that the interest on the bank loan is paid in the year following the loan and is based upon the previous year's ending balance of the loan. [Hint:This requires that each year's income statement be revised to add an interest expense (equal to 10 percent of the previous year's ending bank loan amount more than $100,000) to the original expense projections. This will cause the equity account to become negative.] We have done the first statements to help get you started. (The bank loan amount was entered last so as to cause the column to sum to the last line.)

Checkpay, Inc. - Statement of Cash Flows for Year 1

Operating Activities

Net income

-$ 70

Investing Activity

None

______

Financing Activities

Bank loan

$ 90

Change in Net Working Capital

$ 20

Checkpay, Inc. - Forecasted Condensed Balance Sheet, End of Year 1

Net working capital

$ 120

Fixed assets

100

Total Assets

$ 220

Bank loan

$ 190

Equity

30

Total Debt and Equity

$ 220

Checkpay, Inc. - Forecasted Income Statement, Year 2

Revenues

$ 200

Original expenses

230

Additional interest expense

9

Net income or loss

$ -39