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SOLUTIONS CHAPTER 5 - CHAPTER 5 FINANCIAL PLANNING AND...

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CHAPTER 5 FINANCIAL PLANNING AND FORECASTING 5-1 HUGHES COMPANY Cash Budget For Six Months Ending June 2008 January February March April May June Credit sales $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Collection $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Credit purchases $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Payments $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Wages and salaries 3,000 3,000 3,000 3,000 3,000 3,000 Factory overhead 1,000 1,000 1,000 1,000 1,000 1,000 Selling expenses 1,500 1,500 1,500 1,500 1,500 1,500 Administrative expense 500 500 500 500 500 500 Capital expenditures 10,000 Income taxes 5,000 Dividend payments 10,000 Interest charges 1,000 Total expenses $16,000 $16,000 $31,000 $16,000 $26,000 $17,000 Net cash gain (loss) $ 4,000 $ 4,000 ($11,000) $ 4,000 ($ 6,000) $ 3,000 Beginning cash balance 10,000 14,000 18,000 7,000 11,000 5,000 Cumulative cash balance$14,000 $18,000 $ 7,000 $11,000 $ 5,000 $ 8,000 Minimum cash balance (10,000 ) (10,000 ) (10,000 ) (10,000 ) (10,000 ) (10,000 ) Cash surplus 4,000 $ 8,000 $ 1,000 Cash deficit $ 3,000 $ 5,000 $ 2,000
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5-2 HUGHES COMPANY Income Statement For Six Months Ending June 30, 2008 Sales $120,000 Cost of goods sold Beginning inventory $ 1,000 Raw materials purchased 60,000 Direct labor 18,000 Factory overhead 6,000 Depreciation 3,000 Total $88,000 Ending inventory 8,000 80,000 Gross profit $ 40,000 Selling expenses $ 9,000 Administrative expenses 3,000 12,000 Operating profit $ 28,000 Interest expense 1,000 Earnings before taxes $ 27,000 Taxes at 50% 13,500 Earnings after taxes $13,500 5-3 HUHES COMPANY Balance Sheet For Six Months Ending June 30, 2008 Cash $10,000 Accounts payable $10,000 Accounts receivable 20,000 Notes payable 2,000 Inventory 8,000 Accrued income taxes 23,500 Total current assets $38,000 Total current debts $35,500 Gross fixed assets $87,000 Bonds (10%) $20,000 Accumulated depreciation 30,000 Common stock 10,000 Net fixed assets $57,000 Retained earnings 29,500 Total assets $95,000 Total claims $95,000 5-4 HUGHES COMPANY Sources and Uses of Funds Statement For Six Months Ending June 30, 2008 Earnings after taxes $13,500Accounts receivable $ 1,000 Depreciation 3,000 Inventory7,000 Notes payable 3,000 Gross fixed assets 10,000 Accrued income taxes 8,500 Dividend payments 10,000 Total sources $28,000 Total uses $28,000
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5-5 WELLINGTON COMPANY Balance Sheet Items as Percent of Sales December 31, 2007 Cash 5.0% Accounts payable 30.0% Accounts receivable 30.0 Accrued expenses 2.5 Inventory 20.0 Total current debts 32.5% Total current assets 55.0% Assets as percent of sales 55.0% Less: spontaneous liabilities -32.5 Additional financing as percent of incremental sales 22.5% Sales are scheduled to increase by $40,000 from $200,000 to $240,000. The $40,000 increase in sales necessitates $9,000 (22.5 percent of sales) in additional funds. The company's earnings after taxes are 8 percent on sales or $19,200 ($240,000 x 0.08). Because the company will retain 30 percent of its earnings, its retained earnings will increase by $5,760 ($19,200 x 0.30). If we subtract these retained earnings of $5,760 from $9,000 that must be financed, we find that the company will need an additional amount of $3,240 ($9,000 - $5,760).
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