80.2K

Verified Solution

Link Copied!

The president of the retailer Pet Products has just approached the company's bank with a request for a $30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inventories. Because the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to help determine whether the loan should be made. The following information is available for the months October through December, during which the loan will be used: On October 1, the start of the loan period, the cash balance will be $25,000. Accounts receivable on October 1 will total $150,000, of which $120,000 will be collected during October and $26,000 will be collected during November. The remainder will be uncollectible. Experience shows that 25% of a month's sales are collected in the month of sale, 65% in the month following sale, and 9% in the second month following sale. The other 1% is bad debts that are never collected. Budgeted sales and expenses for the three-month period follow: October November December Sales (all on account) $300,000 $410,000 $350,000 Merchandise purchases 210,000 180,000 160,000 Payroll 25,000 42,000 30,000 Lease payments 12,000 12,000 12,000 Advertising 8,000 8,000 8,000 Equipment purchases - 10,000 60,000 Depreciation 15,000 15,000 18,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during Spetember, which will be paid in October, total $160,000. In preparing the cash budget, assume that the $30,000 loan will be made in October and repaid at the end of December. Interest on the loan will total $1,200 and be paid along with the loan repayment at the end of December. Required: Prepare an Excel-based analysis that addresses the items below. The analysis/model must use formulas for all calculations and will allow what-if scenarios for differing cash collections assumptions. Each analysis should have a separate tab/sheet in the analysis. 1. Calculate the expected cash collections for October, November, and December, and for the three months in total. 2. Prepare a cash budget by month and in total for the 3-month period. 3. Prepare a revised cash collections schedule and cash budget by developing revised cash collections assumptions (i.e., changing the 25%, 65%, and 9% timing estimates). The best practice will be to copy your sheets from requirements 1 and 2 and changing the percentage assumptions. If your model is formula-driven, this will just take a couple of minutes. I will grade key aspects of this analysis by changing the assumptions to make sure your schedules update to reflect the changes.

Answer & Explanation Solved by verified expert

See Answer