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spent $920,861 on inventory purchases and had operating expenses
of $363,304, for total expenditures of $1,284,165. Thus,
although Renier had outlays averaging over $107,000 per month in
fiscal 1989, Mr. Sliwoski assumed Renier would require less than
one-fourth of that amount as working capital. This estimate is
unduly low, particularly in light of the fact that Renier paid
for its inventory with cash in order to take advantage of early
payment cash discounts offered by trade creditors. Mr.
Sliwoski’s estimates for the other years are no more reasonable.
Given the obvious shortcomings of Mr. Sliwoski’s working capital
estimates, we reject his methodology in favor of that used by Mr.
Kramer, which not only left sufficient working capital to cover
Renier’s operating expenses but also provided additional working
capital to purchase inventory with cash. Based on Mr. Kramer’s
formula, as adjusted to account for the double-counted liability
of $137,038, we conclude that $104,584 should be subtracted from
Renier’s reported net income as a normalizing adjustment to
account for the interest generated by its excess working capital.
c. Spread for Cost-of-Goods-Sold Adjustment
The parties agree that for a number of years Renier had used
an incorrect inventory accounting system that overstated cost of
goods sold. The errors in cost of goods sold were corrected by
means of adjustments to the 1993 and 1994 fiscal years, which
resulted in reported net income for those years that
substantially exceeded amounts in the preceding 4 years. The
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