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This is the balance sheet of Pen company we constructed at the end of the first year,

and in the beginning of the second year,

it will be exactly the same.

Then, to plan for the second year,

we need to make key assumptions for the second year.

So, the company is expecting that it needs new funding.

So, enter funding in the Q1,

Q1 means the first quarter.

But the company does not know yet how much it should raise.

After this planning, we'll then know how much fund it will need.

So, let's go over these key assumptions for the second year.

So, in Q1, the company will purchase raw materials worth $5,000 with cash.

And please remember that the company has

account receivable of $2,500 from the previous year,

and in Q1, the company will collect this money.

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Other expenses are $250 per quarter.

The company targets to sell a total of 10,000 pens with a unit price of $1.

And the sales money is collected one quarter later.

And in the last quarter,

10 percent of interest on the loan will be paid.

And the equipment is depreciated by $800 just like the first year.

Based on these 10 assumptions,

let's plan for the second year.

The base of the financial planning is the sales plan.

So, this table shows the sales plan.

So, in quarter one and quarter two,

the company will sell 2,000 pens each.

And in the second half of the year,

third quarter and fourth quarter,

it is 3,000 pens in each quarter.

And the unit price is $1.

And in the beginning of the year,

there is no finished goods inventory,

but the company feels that they should maintain a certain inventory level.

So, it plans to maintain 1,000 pens in quarter

one and from quarter two on 2,000 finished goods inventory in each quarter.

Based on these our sales plan and inventory level,

we can decide the production level.

For example, in quarter one,

the company produces 3,000 pens,

and 2,000 out of these 3,000 will be sold,

and 1,000 will remain as inventory.

And in quarter two,

if the company produces a 3,000,

then the inventory will be 2,000 after the company sells 2,000 pens.

So, now, we have our sales plan,

production plan with a target inventory level.

Based on these plans,

let's construct our cash flow statement.

We know that in the beginning of the year,

the beginning cash balance is $600,

and the sales of quarter one will be collected in the second quarter, and so on.

So, the revenue collection will look like this.

And we know that in quarter one,

the company purchases raw materials worth $5,000 with cash,

so there is a decrease of $5,000.

And then, in the beginning of the year,

the company hires a production worker with an annual salary of $1,200.

So, the company pays $300 each to the production worker like this line.

And the CEO's annual salary is $2,000,

so minus $500 for each quarter.

And the other expenses are $250 per quarter, like this.

So, if we add up these, in quarter one,

there is a decrease of $3,550 and quarter two an increase of $950.

So, let's not consider funding yet.

And then, fill up this,

the remainder of the table.

And then, the ending cash balance looks like this.

So, at the end of the first quarter,

the cash level is close to minus $3,000 and this suggests that the company needs funding.

So, how much does the company need?

Since this is a planning,

we don't know exactly why that happened in reality,

so it is advisable to have some caution when you raise the fund.

And there's no single number,

the correct number, but maybe,

and if I were the CEO of this company, I'll raise $5,000.

So, let's put the $5,000 and then the resulting ending balance looks like this.

Of course, you can raise more like 6,000 or more.

Based on this Angel funding,

we will construct other financial statements.

In summary, based on the sales plan,

plan for inventories, production, hiring,

and expenses, we construct the cash flow statement.

And from this, we determine the amount of funding.