EXERCISE 10–6 Selected financial data of Future Technologies, Inc., at December 31, Year 1, are shown below:

Cash......................................... $ 42,000 Accounts payable ........$ 78,000 Accounts receivable.................. 90,000 Notes payable.............. 21,000 Inventory................................... 39,000 Accrued taxes.............. 10,800 Fixed assets.............................. 120,000 Capital stock............... 120,000 Accumulated depreciation........ 25,800 Retained earnings....... 35,400 The following additional information is available for the year ended December 31, Year 1:

Sales ...................................................................$450,000 Depreciation...... $15,000 Cost of goods sold (excluding depreciation) ........ 312,000 Net income ........ 12,000 Purchases............................................................ 210,000 For Year 2, Future Technologies anticipates a 5% sales growth. To counterbalance this lower than expected growth rate, the company implements cost-cutting strategies to reduce cost of goods sold by 2% from the Year 1 level. All other expenses are expected to increase by 5%. Expected net income for Year 2 is $20,000. Ending Year 2 inventory is estimated at $90,000 and there is no expected balance in accrued taxes. The company requires $175,000 to buy new equipment in Year 2.

The minimum desired cash balance is $30,000. The company offers a discount of 2% of sales if payment is received in 10 days. It is expected that 10% of sales take advantage of this discount, while the remaining 90% are collected (on average) in 60 days.

Required:

Prepare a what-if analysis of cash needs (cash forecast) for Year 2. Will Future Technologies need to borrow money?