Problem:
The owner of a new startup company, GreatIdea LLC, needs a working capital analysis for the coming four quarters to assist with her cash flow concerns. Unlevered Net Income is expected to be zero for the first two quarters and $100,000 in quarter 3 and $300,000 in quarter 4. Accounts payable will be constant at $50,000 per quarter. Accounts receivable will be zero in the first two quarters but then be $75,000 and $200,000 in quarters 3 and 4 respectively. Inventory will start at $100,000 in Quarter 1, grow to $150,000 in quarter 2 and continue at that level for quarters 3 and 4. Some miscellaneous other needs for working capital will be constant at $25,000 in each quarter. She has secured a $250,000 line of credit for working capital. Will it be sufficient assuming that net income can be used to fund this as needed? Justify your answer.