– Seasonal Income Statement. 1) We assumed the “Net Sales” as exogenous variables. 2) We computed the COGS as the 70% of Net Sales. 3) The Gross Margins are equal to the difference between Net Sales and COGS 4) The Operational Expenses are given and equal to 200,000$ per month. 5) Interest Expenses are calculated as the sum of interests based on Long Term Debt (400,000$ with an amortization of 25,000$ due in June and December) and interests based on the Line of Credit (752,000$ at the beginning, with a monthly maturity) . The first has a fixed annual rate of 95/8%, while the second has a annual rate of 9%. In the calculation of those we divided by 12 to reach the monthly payment. 6) The total of Interest incomes are based on the Cash available to Toy World, Inc.. They are equal to 4% (annualized rate of return) times the average monthly cash balances. To compute the monthly interest incomes we did the arithmetical mean of two months cash availability. Doing this we addressed the lack of knowledge related to the dates of payments. 7) The NIBT is the difference between the Gross Margin plus Interest Incomes and Operational Expenses plus Interest Expenses. 8) Taxes are, according to the federal tax rate, equal to 34% of NIBT. 9) NIAT is the difference between NIBT and Taxes. B – Seasonal Balance Sheet Assets: 1) Cash is given 2) Assuming a 60-­‐days collecting period Receivables are the sum of Net Sales

of the last two months. 3) Inventory are constant and equal to 586.000$ per month. 4) The Total CA is the sum of the previous 3 points. 5) PP&E are all 1,176,000$ because of the equipment purchases are equal to the depreciation expense. 6) Total Assets are the sum of Total CA and PP&E September 5th 2012 1 Liabilities: 7) Accounts payable are 30% of current monthly net sales. 8) Notes payable are the difference between assets and liabilities, and make balance sheet balance as a plug figure. 9) Accrued taxes are the sum of the taxes due in the previous month plus the currently taxes. Moreover we have to specify that on March Toy World, Inc. has to pay also the accruals of the previous year (88,000$); and that on April, June, Sept. and Dec. it has to pay 35,000$. 10) The Current portion of LTD is 50,000$ per month 11) Total CL are equal to the sum of the previous 4 points Equity: 12) The LTD as cited in point 3 of A is 400,000$ per month with a curtailment of 25,000$ on June and December. 13) Equity is the sum of the previous monthly equity and current NIAT. 14) Total of L&E is the sum of Liabilities and Equity

C – Level Income Statement In the Level Income Statement we followed the same steps of the Seasonal one except for the these differences: 1) The COGS are the 65.1% of Net Sales. 2) In the operational Expenses we included a 115,000$ for handling defined as function of inventory at month end as a % of yearly inventory. D – Inventories – Accruals Inventories : 1) The Beginning Balance is equal to the remaining inventory of the previous month. 2) The Production is computed as the yearly one (assumed, according to the forecasting, equal to 10,000,000$) divided by 12 (833,000$). 3) The Goods sold are equal to a percentage of the Net Sales total amount. 4) The End Balance is equal to 1) plus 2) minus 3). 5) Accruals are computed as in point “B -­‐ 9)” E – Level Balance Sheet In the Level Balance Sheet we inserted the data of D and we followed the same steps of B. September 5th 20– Seasonal Income Statement. 1) We assumed the “Net Sales” as exogenous variables. 2) We computed the COGS as the 70% of Net Sales. 3) The Gross Margins are equal to the difference between Net Sales and COGS 4) The Operational Expenses are given and equal to 200,000$ per month. 5) Interest Expenses are calculated as the sum of interests based on Long Term

Debt (400,000$ with an amortization of 25,000$ due in June and December) and interests based on the Line of Credit (752,000$ at the beginning, with a monthly maturity) . The first has a fixed annual rate of 95/8%, while the second has a annual rate of 9%. In the calculation of those we divided by 12 to reach the monthly payment. 6) The total of Interest incomes are based on the Cash available to Toy World, Inc.. They are equal to 4% (annualized rate of return) times the average monthly cash balances. To compute the monthly interest incomes we did the arithmetical mean of two months cash availability. Doing this we addressed the lack of knowledge related to the dates of payments. 7) The NIBT is the difference between the Gross Margin plus Interest Incomes and Operational Expenses plus Interest Expenses. 8) Taxes are, according to the federal tax rate, equal to 34% of NIBT. 9) NIAT is the difference between NIBT and Taxes. B – Seasonal Balance Sheet Assets: 1) Cash is given 2) Assuming a 60-­‐days collecting period Receivables are the sum of Net Sales of the last two months. 3) Inventory are constant and equal to 586.000$ per month. 4) The Total CA is the sum of the previous 3 points. 5) PP&E are all 1,176,000$ because of the equipment purchases are equal to the depreciation expense. 6) Total Assets are the sum of Total CA and PP&E September 5th 2012

1 Liabilities: 7) Accounts payable are 30% of current monthly net sales. 8) Notes payable are the difference between assets and liabilities, and make balance sheet balance as a plug figure. 9) Accrued taxes are the sum of the taxes due in the previous month plus the currently taxes. Moreover we have to specify that on March Toy World, Inc. has to pay also the accruals of the previous year (88,000$); and that on April, June, Sept. and Dec. it has to pay 35,000$. 10) The Current portion of LTD is 50,000$ per month 11) Total CL are equal to the sum of the previous 4 points Equity: 12) The LTD as cited in point 3 of A is 400,000$ per month with a curtailment of 25,000$ on June and December. 13) Equity is the sum of the previous monthly equity and current NIAT. 14) Total of L&E is the sum of Liabilities and Equity C – Level Income Statement In the Level Income Statement we followed the same steps of the Seasonal one except for the these differences: 1) The COGS are the 65.1% of Net Sales. 2) In the operational Expenses we included a 115,000$ for handling defined as function of inventory at month end as a % of yearly inventory.

D – Inventories – Accruals Inventories : 1) The Beginning Balance is equal to the remaining inventory of the previous month. 2) The Production is computed as the yearly one (assumed, according to the forecasting, equal to 10,000,000$) divided by 12 (833,000$). 3) The Goods sold are equal to a percentage of the Net Sales total amount. 4) The End Balance is equal to 1) plus 2) minus 3). 5) Accruals are computed as in point “B -­‐ 9)” E – Level Balance Sheet In the Level Balance Sheet we inserted the data of D and we followed the same steps of B. September 5th 2012 2 Conclusion: PROS Higher NIAT, which implies higher equity, due to savings in labor costs (elimination of overtiming wage premiums) CONS

• NP are from March to November above the threshold of 2,000,000$ (interest rate renegotiation required) • Inflows and Outflows are not balanced

12 2 Conclusion: PROS Higher NIAT, which implies higher equity, due to savings in labor costs (elimination of overtiming wage premiums) CONS

• NP are from March to November above the threshold of 2,000,000$ (interest rate renegotiation required) • Inflows and Outflows are not balanced