Suppose that you have generated the estimates listed below from a pro forma analysis for a manufacturing company that had requested a three- year term loan. The loan is a $1.5 million term loan with equal annual principal payments. Principal and interest are payable at the end of each year with interest calculated against outstanding principal at a rate of prime plus 2 percent. Capital expenditures Cash dividends Cash flow from operations before interest expense Year 1 $250,000 $125,000 Year 2 Year 3 $75,000 $140,000 $140,000 $140,000 $750,000 $780,000 $800,000

a. The prime rate averages 8 percent each year. Will the firm's cash flow from operations before interest be sufficient to meet debt service requirements and other mandatory expenditures?

b. If prime averages 8 percent, 9 percent, and 10 percent over the three years, respectively, will cash flow be sufficient?