Problem: 4-6A

(Cash budget) The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows:

January $ 90,000

February 120,000

March 135,000

April 240,000

May $300,000

June 270,000

July 225,000

August 150,000

Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2003 were $220,000 and $175,000, respectively.

Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.

In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March

The company's cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 × 1/12 × $60,500) owed for April and paid at the beginning of May.

1. Prepare a cash budget for Sharpe covering the first seven months of 2004.

2. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?

Problems:

5-1A

(Compound interest) To what amount will the following investments accumulate?

1. $5,000 invested for 10 years at 10 percent compounded annually

2. $8,000 invested for 7 years at 8 percent compounded annually

3. $775 invested for 12 years at 12 percent compounded annually

4. $21,000 invested for 5 years at 5 percent compounded annually

5-4A

(Present value) What is the present value of the following future amounts?

1. $800 to be received 10 years from now discounted back to the present at 10 percent

2. $300 to be received 5 years from now discounted back to the present at 5 percent

3. $1,000 to be received 8 years from now discounted back to the present at 3 percent

4. $1,000 to be received 8 years from now discounted back to the present at 20 percent

5-5A

(Compound annuity) What is the accumulated sum of each of the following streams of payments?

1. $500 a year for 10 years compounded annually at 5 percent

2. $100 a year for 5 years compounded annually at 10 percent

3. $35 a year for 7 years compounded annually at 7 percent

4. $25 a year for 3 years compounded annually at 2 percent

5-6A

(Present value of an annuity) What is the present value of the following annuities?

1. $2,500 a year for 10 years discounted back to the present at 7 percent

2. $70 a year for 3 years discounted back to the present at 3 percent

3. $280 a year for 7 years discounted back to the present at 6 percent

4. $500 a year for 10 years discounted back to the present at 10 percent

Problem: 4-6A

(Cash budget) The Sharpe Corporationâs projected sales for the first

eight months of 2004 are as follows:

January $ 90,000

February 120,000

March 135,000

April 240,000

May $300,000

June 270,000

July 225,000

August 150,000

Of Sharpeâs sales, 10 percent is for cash, another 60 percent is

collected in the month following sale, and 30 percent is collected in

the second month following sale. November and December sales for 2003

were $220,000 and $175,000, respectively.

Sharpe purchases its raw materials two months in advance of its sales

equal to 60 percent of their final sales price. The supplier is paid one

month after it makes delivery. For example, purchases for April sales

are made in February and payment is made in March.

In addition, Sharpe pays $10,000 per month for rent and $20,000 each

month for other expenditures. Tax prepayments of $22,500 are made each

quarter, beginning in March

The companyâs cash balance at December 31, 2003, was $22,000; a

minimum balance of $15,000 must be maintained at all times. Assume that

any short-term financing needed to maintain the cash balance is paid off

in the month following the month of financing if sufficient funds are

available. Interest on short-term loans (12 percent) is paid monthly.

Borrowing to meet estimated monthly cash needs takes place at the

beginning of the month. Thus, if in the month of April the firm expects

to have a need for an additional $60,500, these funds would be borrowed

at the beginning of April with interest of $605 (.12 Ð§ 1/12 Ð§ $60,500)

owed for April and paid at the beginning of May.

Prepare a cash budget for Sharpe covering the first seven months of

2004.

Sharpe has $200,000 in notes payable due in July that must be repaid or

renegotiated for an extension. Will the firm have ample cash to repay

the notes?

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Problems:

5-1A

(Compound interest) To what amount will the following investments

accumulate?

$5,000 invested for 10 years at 10 percent compounded annually

$8,000 invested for 7 years at 8 percent compounded annually

$775 invested for 12 years at 12 percent compounded annually

$21,000 invested for 5 years at 5 percent compounded annually

5-4A

(Present value) What is the present value of the following future

amounts?

$800 to be received 10 years from now discounted back to the present at

10 percent

$300 to be received 5 years from now discounted back to the present at 5

percent

$1,000 to be received 8 years from now discounted back to the present at

3 percent

$1,000 to be received 8 years from now discounted back to the present at

20 percent

5-5A

(Compound annuity) What is the accumulated sum of each of the following

streams of payments?

$500 a year for 10 years compounded annually at 5 percent

$100 a year for 5 years compounded annually at 10 percent

$35 a year for 7 years compounded annually at 7 percent

$25 a year for 3 years compounded annually at 2 percent

5-6A

(Present value of an annuity) What is the present value of the following

annuities?

$2,500 a year for 10 years discounted back to the present at 7 percent

$70 a year for 3 years discounted back to the present at 3 percent

$280 a year for 7 years discounted back to the present at 6 percent

$500 a year for 10 years discounted back to the present at 10 percent

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