The Castillo Products Company was started in 2014. The company manufactures components for personal digital assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2015, was followed by a profitable 2016. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital because they are expecting to secure additional external financing to support planned growth. Short-term bank loans are available at an 8 percent interest rate. Cindy and Rob believe that the cost of obtaining longterm debt and equity capital will be somewhat higher. The real interest rate is estimated to be 2 percent, and a long-run inflation premium is estimated at 3 percent. The interest rate on long-term government bonds is 7 percent. A default-risk premium

on long-term debt is estimated at 6 percent; plus Castillo Products is expecting to have to pay a liquidity premium of 3 percent due to the illiquidity associated with its long-term debt. The market risk premium on large-firm common stocks over the rate on long-term government bonds is estimated to be 6 percent. Cindy and Rob expect that equity investors in their venture will require an additional investment risk premium estimated at two times the market risk premium on large-firm common stocks. Following are income statements and balance sheets for the Castillo Products Company for 2015 and 2016. 

A. Use year-end data to calculate the current ratio, the quick ratio, and the NWC-to-total-assets ratio for 2015 and 2016 for Castillo Products. What changes occurred?
B. Use Castillo Products' complete income statement data and the changes in balance sheet items between 2015 and 2016 to determine the firm's cash build and cash burn for 2016. Did Castillo Products have a net cash build or a net cash burn for 2016?
C. Convert the annual cash build and cash burn amounts calculated in Part B to monthly cash build and cash burn rates. Also indicate the amount of the net monthly cash build or cash burn rate.

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CASTILLO PRODUCTS COMPANY INCOME STATEMENT 2015 2016 $ 90,000 $1,500,000 Net sales 900,000 Cost of goods sold 540,000 Gross profit 360,000 600,000 Marketing 90,000 150,000 250,000 General and administrative 250,000 Depreciation 40,000 40,000 EBIT -20,000 160,000 45,000 Interest 60,000 Earnings before taxes -65,000 100,000 Income taxes 25,000 $ 75,000 $ -65,000 Net income (loss) 2016 BALANCE SHEET 2015 $ 50,000 $ 20,000 Cash 280,000 Accounts receivable 200,000 Inventories 400,000 500,000 Total current assets 650,000 800,000 Gross fixed assets 450,000 540,000 Accumulated depreciation -140,000 -100,000 350,000 $1,000,000 $ 130,000 Net fixed assets 400,000 Total assets $1,200,000 $ 160,000 Accounts payable Accruals 50,000 70,000 90,000 270,000 Bank loan 100,000 Total curent liabilities 330,000 Long-tem debt Common stock ($0.05 par value) 300,000 400,000 150,000 150,000 200,000 Additional paid-in-capital 200,000 Retained eamings 120,000 80,000 $1,200,000 Total liabilities and equity $1,000,000