Prepare the cash budget and determine the cash inflows, cash outflows, and the expected change in...

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Finance

Prepare the cash budget and determine the cash inflows,cash outflows, and the expected change in cash eachmonth.
The management estimates total sales for the period January,2019 through June 2019 based on actual sales from the immediatepast six months. The following assumptions are made:
? The Sales were $125,000 in July 2018 and then the sales grewby 8% each month for the first three months (i.e., August toOctober 2018) and by 6% for the next two months (i.e., November andDecember 2018). The sales are expected to grow by 3% each monththereafter.
? 35% of the Sales are collected in the same month. 33% of thesales are collected in the following month. 31% of the sales arecollected after two months and the remainder are not collected.
? The Purchases are 60% of each month’s sales and paid in thesame month.
? Wages and Salaries are $25,000 each month and paid in the samemonth.
? Other administrative expenses are $15,000 and paid in the samemonth.
? Depreciation expense is $5,000 each month.
? An electrical device worth $150,000 will be purchased oncredit in April 2019. $75,000 will be paid immediately and thebalance will be paid in May, 2019.
? The company had previously taken a loan of $125,000. Theannual interest rate is 5%. The interest is paid twice a year inJune and December each year. Assume that no principal repaymentsare made in this period, only interest payments are made.
? The company pays rent of $2,500 quarterly (in March, June,September, and December each year).
Questions:
1. Determine the total cash inflows, the total cash outflows,and the expected change in cash for each month from January toJuly, 2019. Show your work in excel using excel functions. Basedthe findings, explain in your own words whether the company shouldborrow/invest and how much and in which months. [4.50 points]
2. Describe in your own words some of the credit monitoringtechniques that the company may adopt. Please write your answer inanother tab on the same excel file, no need to upload another WordDocument file or type your answer elsewhere. [0.50 points]

Answer & Explanation Solved by verified expert

4.3 Ratings (688 Votes)

Jul18Aug18Sep18Oct18Nov18Dec18Jan19Feb19Mar19Apr19May19Jun19Jul19expected Sales current year sales1growth rate125000125000108125000108212500010831574641061157464106217692661031176926610321769266103317692661034176926610351769266103617692661037expectedsales1250001350001458001574641669118417692661822344187701419333251991324205106421125962175974MonthNov18Dec18Jan19Feb19Mar19Apr19May19Jun19Jul19sales for See Answer

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Transcribed Image Text

Prepare the cash budget and determine the cash inflows,cash outflows, and the expected change in cash eachmonth.The management estimates total sales for the period January,2019 through June 2019 based on actual sales from the immediatepast six months. The following assumptions are made:? The Sales were $125,000 in July 2018 and then the sales grewby 8% each month for the first three months (i.e., August toOctober 2018) and by 6% for the next two months (i.e., November andDecember 2018). The sales are expected to grow by 3% each monththereafter.? 35% of the Sales are collected in the same month. 33% of thesales are collected in the following month. 31% of the sales arecollected after two months and the remainder are not collected.? The Purchases are 60% of each month’s sales and paid in thesame month.? Wages and Salaries are $25,000 each month and paid in the samemonth.? Other administrative expenses are $15,000 and paid in the samemonth.? Depreciation expense is $5,000 each month.? An electrical device worth $150,000 will be purchased oncredit in April 2019. $75,000 will be paid immediately and thebalance will be paid in May, 2019.? The company had previously taken a loan of $125,000. Theannual interest rate is 5%. The interest is paid twice a year inJune and December each year. Assume that no principal repaymentsare made in this period, only interest payments are made.? The company pays rent of $2,500 quarterly (in March, June,September, and December each year).Questions:1. Determine the total cash inflows, the total cash outflows,and the expected change in cash for each month from January toJuly, 2019. Show your work in excel using excel functions. Basedthe findings, explain in your own words whether the company shouldborrow/invest and how much and in which months. [4.50 points]2. Describe in your own words some of the credit monitoringtechniques that the company may adopt. Please write your answer inanother tab on the same excel file, no need to upload another WordDocument file or type your answer elsewhere. [0.50 points]