9 and the following information in its preparation

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Unformatted text preview: paration. Sales: February $500,000; March $500,000; April $610,000; June $650,000; July $650,000 $560,000; May Purchases: Purchases are calculated as 60% of the next month’s sales, 10% of purchases are made in cash, 50% of purchases are paid for 1 month after purchase, and the remaining 40% of purchases are paid for 2 months after purchase. Rent: The firm pays rent of $8,000 per month. Wages and salaries: Base wage and salary costs are fixed at $6,000 per month plus a variable cost of 7% of the current month’s sales. Taxes: A tax payment of $54,500 is due in June. Fixed asset outlays: New equipment costing $75,000 will be bought and paid for in April. Interest payments: An interest payment of $30,000 is due in June. Cash dividends: Dividends of $12,500 will be paid in April. Principal repayments and retirements: No principal repayments or retirements are due during these months. LG4 LG4 3–9 Cash budget—Basic Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and $100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $5,000. Given the following data, prepare and interpret a cash budget for the months of May, June, and July. (1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale. (2) The firm receives other income of $2,000 per month. (3) The firm’s actual or expected purchases, all made for cash, are $50,000, $70,000, and $80,000 for the months of May through July, respectively. (4) Rent is $3,000 per month. (5) Wages and salaries are 10% of the previous month’s sales. (6) Cash dividends of $3,000 will be paid in June. (7) Payment of principal and interest of $4,000 is due in June. (8) A cash purchase of equipment costing $6,000 is scheduled in July. (9) Taxes of $6,000 are due in June. 3–10 Cash budget—Advanced The actual sales and purchases for Xenocore, Inc., for September and October 2003, along with its forecast sales and purchases for the period November 2003 through April 2004, follow. CHAPTER 3 Cash Flow and Financial Planning Year Month Sales Purchases 2003 2003 2003 2003 2004 2004 2004 2004 September October November December January February March April $210,000 250,000 170,000 160,000 140,000 180,000 200,000 250,000 133 $120,000 150,000 140,000 100,000 80,000 110,000 100,000 90,000 The firm makes 20% of all sales for cash and collects on 40% of its sales in each of the 2 months following the sale. Other cash inflows are expected to be $12,000 in September and April, $15,000 in January and March, and $27,000 in February. The firm pays cash for 10% of its purchases. It pays for 50% of its purchases in the following month and for 40% of its purchases 2 months later. Wages and salaries amount to 20% of the preceding month’s sales. Rent of $20,000 per month must be paid. Interest payments of $10,000 are due in January and April. A principal payment of $30,000 is also due in April. The firm expects to pay cash dividends of $20,000 in January and April. Taxes of $80,000 are due in April. The firm also intends to make a $25,000 cash purchase of fixed assets in December. a. Assuming that the firm has a cash balance of $22,000 at the beginning of November, determine the end-of-month cash balances for each month, November through April. b. Assuming that the firm wishes to maintain a $15,000 minimum cash balance, determine the required total financing or excess cash balance for each month, November through April. c. If the firm were requesting a line of credit to cover needed financing for the period November to April, how large would this line have to be? Explain your answer. LG4 3–11 Cash flow concepts The following represent financial transactions that Johnsfield & Co. will be undertaking in the next planning period. For each transaction, check the statement or statements that will be affected immediately. Statement Transaction Cash sale Credit sale Accounts receivable are collected Asset with 5-year life is purchased Depreciation is taken Amortization of goodwill is taken Sale of common stock Retirement of outstanding bonds Fire insurance premium is paid for the next 3 years Cash budget Pro forma income statement Pro forma balance sheet 134 PART 1 LG4 Introduction to Managerial Finance 3–12 Cash budget—Sensitivity analysis Trotter Enterprises, Inc., has gathered the following data in order to plan for its cash requirements and short-term investment opportunities for October, November, and December. All amounts are shown in thousands of dollars. October November December Pessimistic Total cash receipts Total cash disbursements Most likely Optimistic Pessimistic Most likely Optimistic Pessimistic Most likely Optimistic $260 $342 $462 $200 $287 $366 $191 $294 $353 285 326 421 203 261 313 287 332 315 a. Prepare a sensitivity analysis of Trotter’s cash budget using...
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