Carol Adams is starting her own retailing business. She has $50,000 available of her own capital to put into the business. She thinks she will also need some bank funding as she would like to borrow a further $40,000 from her local bank and would also like to negotiate an overdraft facility. The bank manager has asked Carol to provide her with a Business Plan that includes a forecast Statement of Cash Flow, Income Statement and Statement of Financial Position for the first year of trading. Carol has asked you to help her draw up these statements and provides you with the following information: Sales are expected to be $30,000 per month. The gross margin on sales is expected to be 25%. She will give two month's credit to her customers. She will also receive one month credit on her purchases. She would also like to purchase sufficient goods for resale so as to have a closing inventory by the end of the year valued at $10,000 at cost. She will take out a lease on some shop premises. The lease will cost $20,000 per year payable annually. Shop fittings are expected to cost $60,000 but are estimated to last five years. She will have to pay the full amount for these as soon as they are delivered. General running expenses of the shop are expected to be $2,000 per month, payable as incurred. Carol will work in the shop herself and would like to draw $1,000 per month out of the business to cover her own living expenses. The loan will be repayable in equal monthly instalments over five years. The interest payable on the loan will be $2,000 per year. Required: a) Prepare an analysis of Carol’s cash position at the end of the first year of trading.
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