Consider the financial statements for Ace Inc. for questions 1 to 8:

1. Identify the sources of cash and uses of cash for each year. Create a sources and uses statement.
2. Estimate the age of inventory for each year.
3. Estimate the age of accounts receivable for each year.
4. Estimate the age of accounts payable for each year.
5. Estimate the working capital gap for each year.
6. Suppose year 2's days of inventory were reduced to 35. How much cash would be freed up?
7. Suppose year 2's days of receivables were reduced to 35. How much cash would be freed up?
8. Suppose year 2's days of payables were increased to 40. How much cash would be freed up?
9. What are the three methods by which a firm can improve its working capital gap?
10. From a lender's (or an investor's) perspective, which is safer, and why: commercial paper or bankers acceptances?

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Ace Inc. Income Statements ($000s) Year Year 2 Sales Cost of goods sold Gross margin Selling & admin expenses Depreciation Operating income Interest expense Profit before tax Income tax (at 35%) Net income Common dividend paid $250,000 $290,000 165,000 173,000 85,000 117,000 76,000 13,000 14,000 4,000 27,000 800 3,100 26,200 1,085 9,170 $2015 $17,030 $1,000 68,000 900 $1,000 Ace Inc. Balance Sheets at December 31 ($000s) Year Year 2 Cash Accounts receivable Inventories Total current assets $2,400 $2,800 30,000 32,000 18,000 20,000 50,400 54,800 t property and equipment 20,000 24,000 $70,400 $78,800 $20,185 $12,555 14,000 16,000 34,185 28,555 22,000 20,000 14,215 30,245 Total liabilities and equity $70,400 $78,800 Total assets Notes payable: Bank Accounts payable Total current liabilities Long-term debt Common equity