You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 39% increase in sales. Days sales outstanding are expected to improve to 45 days. With respect to inventory and accounts payable, assume that purchases will be $11,008,800 and cash payments will be $9,907,920. The Company expects to invest $1,770,000 (net of depreciation) to expand its storage capacity and achieve scale savings. Accordingly, gross profit margins are expected to be 28% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 31%.

For ease of calculation, assume interest expense remains the same.

Cash 400,000 Sales 10,000,000 Accounts Receivable 1,400,000 Cost of Sales 8,000,000

Inventory 1,800,000 Gross Profit 2,000,000 Total current Assets 3,600,000 Operating Expense 900,000

Fixed Assets 1,400,000 EBIT 1,100,000 Total Assets 5,000,000 Interest Exp 100,000

EBT 1,000,000 Accounts Payable 1,200,000 Tax (30%) 300,000 Long-term Debt 1,000,000

Net Income 700,000 Total Debt 2,200,000 Common Stock 1,300,000 Retained earnings 1,500,000

Total Debt and Equity 5,000,000

In preparing your forecast financial statements, your forecast for operating expense will be ?