There is a case and I need answer for these 2 questions based on the case. Thank you

1) Reconstruct the monthly cash-flow forecast under the scenario discussed in Appendix 1. Make sure you clearly describe the assumptions on cash-flow you are using and clearly state the amount of financing Treasures of the Mountains will need until December 31, 2020.

2) Advise Sarah about the cash flow, credit line and inventory status and, if applicable, recommend a cohesive short-term strategy she should undertake to manage this exceptional situation. Be specific and clear and make sure your recommendations are represented in your revised cash flow forecast.

CASE

It is April 1st, 2020 and Sarah Jackson is sitting at her desk in the office of her store trying to assess the situation following the lockdown order due to the COVID-19 pandemic. "Who could have predicted this", she thought as she was trying to figure out a strategy for what might be a long and stressful period.

Background Information

Three years ago, Sarah left her successful marketing consultant career at a prominent Vancouver firm in an attempt to establish a better work-life balance and especially to pursue her lifelong dream of owning a retail store in her beloved region of the Canadian Mountains where she had fond memories of family summer vacations in her youth.

Treasurers of The Mountains is an upscale retail shop that could be considered an emporium. The main products offered include men and women watches, jewelry items, home furnishings, such as crystals, vases, sculptures, and paintings. The store also provides "Canadian" branded food items, such as Maple Syrup products, Ice-wines, and wine vinegar, all in beautiful gift pack presentations. The store also sells high-end handbags, beauty products, and other fashion accessories tailored to customers with discriminating tastes.

The store does cater to a few local residents of this small well-known tourist area, but over 90% of the sales are to tourists coming to the Mountains from all around the world. Treasures of the Mountains has the advantage to be from walking distance to a prestigious 5-star resort and hotel with worldwide acclaim. Furthermore, the small town is a compulsory stop for tour bus operators servicing tour groups from all parts of the world.

The store is open year-round, but the busy season is concentrated from June to September, where the town is invaded by tourists and the energy is at its pinnacle. The store opens daily for 14 hours.

Opening and Operating Sarah's Dream Store

Three years ago, Sarah found a perfect retail storefront shop for sale: "This is perfect for my dream", she said and quickly purchased the building from a major real estate holding company. She was awarded a mortgage from the bank where monthly capital and interest payments were $9,850. The second floor of the building has a rental office providing $1,200 monthly rental income.

Since the inception, the store is moderately profitable and hires local residents as floor sales associates and administrative employees in charge of purchasing, replenishment, custodial duties, and bookkeeping. The total shop is approximately 450 square meters, 85% of which is dedicated to display the inventory proposed to the customers.

The retail floor is inviting and bright. Sales associates are friendly and collectively, speak many different languages to chat and give advice to the many visitors stopping in to this interesting and particular retail model.

Sarah has a good relationship with her suppliers as well as with the local bank and her account manager. The store has a $500,000 short term line of credit available which is secured by the stores' inventory and a personal guarantee by Sarah, the sole shareholder of Treasures from the Mountains Inc. This credit line is also subject to certain covenants (conditions) described in Appendix 1.

When the Pandemic Hit

We are now on April 1, 2020, and sadly, like most countries, the pandemic is solidly established and stay-at-home orders are in effect. Last Friday, the provincial government ordered all non-essential retail organizations to close for an undetermined period.

Ken, a local accountant, and good friend of Sarah's helps her with certain tax and financial management questions on a volunteer basis. Earlier in the year and before the pandemic ever appeared in Canada, Ken prepared a forecasted cash-flow statement for 2020 based on the seasonality of sales, past years activities and costs, and discussions with Sarah. Appendix 3 shows the original cash flow forecast for the months of April to December 2020.

Moving Forward

As Mark is unavailable at present, Sarah contacted you, in order to revisit the cash flow forecast that Mark prepared prior to the pandemic. Obviously, this cash flow forecast necessitates an extensive overall. Sarah gave you her adjusted sales forecast and further relevant information on operating the retail store in Appendix 1. She is worried whether and how her business can sustain such an extensive period of no sales.

She wondered, "How can I make it to the end of the year?" It would be so heart-breaking for her to see her lifelong dream and all her energy put into building Treasures from the Mountains dissolve.