1. prepare a monthly cash budget for the three month period ending in December.

2. If the firm's beginning cash balance for the budget period is $7,000, and this is its desired minimum balance, determine when and how much the firm will need to borrow during the budget period. The firm has a $50,000 line of credit with its bank, with interest (10% annual rate) paid monthly. For example, interest on a loan taken out at the end of September would be paid at the end of October and every month thereafter, as long as the loan was outstanding.

line of credit p. 307 percenta You Make the Call Situation 1 D&R Products, Inc., used as an example in this chapter, is an actual firm (although some of the facts were changed to maintain confi- dentiality), David Allen bought the firm from its founding owners and moved its operations to his hometown. Although he has esti- mated the firm's asset needs and financing requirements, he can not be certain that these projections will be realized. The figures merely represent the most likely case. Allen also made some pro- jections that he considers to be the worst-case and best-case sales and profit figures. If things do not go well, the firm might have sales of only $200,000 in its first year. However, if the potential of the business is realized, Allen believes that sales could be as high as $325,000. If he needs any additional financing beyond the exist ing line of credit, he could conceivably borrow another $5,000 in short-term debt from the bank by pledging some personal invest ments. Any additional financing would need to come from Allen himself, thereby increasing his equity stake in the business. Question If all of D&R Products other relationships hold, how will Allen's worst case and best case projections affect the Income statement and balance sheet in the first year? To help you in your analysis, D&R Product's pro forma statements, as presented in Exhibits 11.1. 11.3, and 114, are available at CengageBrain.com (select the Longenecker text), Situation 2 The firm has a monthly rental expense of $5,000. Wages and salaries for the coming months are estimated at $25,000 per month of the firm's sales, 25 percent is collected in the month of the sale, 35 percent one month after the sale, and the remaining 40 percent two months after the sale. Merchandise is purchased one month before the sales month and is paid for in the month it is sold. Purchases equal 75 percent of sales. Tax prepayments are made quarterly, with a prepayment of $10,000 in October based on earnings for the quarter ended September 30 Utility costs for the firm average 3 percent of sales and are paid in the month they are incurred, Depreciation expense is $20,000 annually, Question 1 Prepare a monthly cash budget for the three month perlod ending in December. Question 2 If the firm's beginning cash balance for the budget period is $7,000, and this is its desired minimum balance, deter- mine when and how much the firm will need to borrow during the budget period. The firm has a $50,000 line of credit with its bank, with interest (10 percent annual rate) paid monthly. For example, Interest on a loan taken out at the end of September would be paid at the end of October and every month thereafter, as long as the loan was outstanding. Question 1 Prepare a monthly cash budget for the three-month period ending in December Question 2 If the firm's beginning cash balance for the budget period is $7,000, and this is its desired minimum balance, deter- mine when and how much the firm will need to borrow during the budget period. The firm has a $50,000 line of credit with its bank, with interest (10 percent annual rate) paid monthly. For example, interest on a loan taken out at the end of September would be paid at the end of October and every month thereafter, as long as the loan was outstanding. usiness Managemen... 11.1 Pro Forma Income Statements For D&R Products, Inc. EXHIBIT B D 3 INCOME STATEMENT ASSUMPTIONS: 4 Year 1 Year 2 20 $ 12.500 $100,000 $ 46,000 $ 4,000 $ 8,000 20% 30% 30 $ 12.500 $100,000 $ 46,000 $ 12,000 $ 8,000 2046 3096 Equations based on assumptions $ 10,000 $ 10,000 $ 25,000 $ 10,000 25% 25% 5 Product sales and installations 6 Number of projected jobs 7 Average selling price per job 8 Fixed cost of goods sold 9 Fixed operating expenses 10 Depreciation expense 11 Interest expense 12 Variable cost of goods sold 13 Variable operating expenses 14 Product design: 15 Projected design revenues 16 Fixed design costs 17 18 Income tax rate 19 20 21 Sales 22 Product sales and installations 23 Product design 24 Total sales 25 26 Cost of goods sold 27 Cost of goods sold product sales and installations 28 Fixed cost of goods sold 29 Variable cost of goods sold 20% of product sales) 30 Total cost of goods sold product sales and Installations Total cost of goods sold product design 32 Total cost of goods sold 33 Gross Profits 34 35 Operating expenses product sales and installations Equations for: Year 1 Year 2 $250,000 10,000 $260,000 $375,000 25,000 5400,000 36 37 -C6 C7 -B15 =C15 SUM(B22:123) -SUMC22:23) -6 $100,000 50,000 $100,000 75,000 -C8 -C22C12 -B22-12 31 $150,000 10,000 $160,000 $100,000 $175,000 10,000 $185.000 $215,000 SUM(B28.829 SUMC28.029) 316 -C16 SUMIB30:331) - SUMC30.01 -B24-832 -624-032 AL CAM Aa ... A Account Read Aloud Library Book View Window Help siness Managemen... > > BARU 20% 30N 2096 3046 Equations based on assumptions $ 10,000 $ 10,000 $ 25,000 $ 10,000 25% 25% Equations for: Year 1 Year 2 12 Variable cost of goods sold 13 Variable operating expenses 14 Product design: 15 Projected design revenues 16 Pred design costs 12 18 Income tax rate 19 20 21 Sales 22 Product sales and installations 23 Product design 24 Total sales 25 26 Cost of goods sold 27 Cost of goods sold product sales and installations 28 Fixed cost of goods sold 29 Variable cost of goods sold (20% of product sales) 30 Total cost of goods sold: product sales and installations 31 Total cost of goods sold: product design 32 Total cost of goods sold 33 Gross Profits $250,000 10,000 $260,000 $375,000 25,000 $400,000 -B6*B7 -C6C -315 -C15 -SUM[822-B23) -SUM(C22.C23) $100,000 50,000 $100,000 75,000 =88 =B22*B12 =C8 =C22"C12 $150,000 10.000 $160,000 $100,000 $175,000 10,000 $185.000 $215,000 SUM(B28:329) - SUMC28:C29) -B16 C16 SUM(B30:831) - SUM(C30:C31) =824-B32 C24-C32 $ 46,000 75,000 4,000 $ 46,000 112,500 4,000 B9 -B13*822 -810 -C9 -C13'C22 -C10 35 Operating expenses product sales and installations 36 Fixed operating expenses 37 Variable operating expenses (30% of product sales) 38 Depreciation expense 39 Total operating expenses:product sales and Installations 40 Operating profits 41 Interest expense interest rate 129 42 Profits before taxes 43 Taxes (25% of profits before tax) 44 Net profits $125,000 $ 125,000) 8,000 $ 33,000) 0 S (33.000) $162,500 $($2,500) 12.000 $ 40,500 10,125 $ 30,375 -SUM[836.838) SUMC36:C38) =B33-839 -C33-039 -311 -C11 -B40-841 C40-041 0 C42"C18 842-843 -C42-043 300 Part 3 Developing the New Venture Business Plan AB a 11.3 Pro Forma Balance Sheets For D&R Products, Inc. EXHIBIT D Year 1 $250,000 Year 2 $375,000 44 10 A 3 BALANCE SHEET ASSUMPTIONS 4 Projected revenues product sales and installations 5 Cash/sales 6. Account receivable/sales 7 Inventory/sales 8 Gross fixed assets 9 Accounts payable/sales 10 Accrued expenses/sales 11 Cost of equipment 12 Building cost 416 10% 25% $ 50,000 8% 4% $ 10,000 $ 40,000 25% $ 50,000 8% 49 $ 10,000 $ 40,000 Equations based on assumptions 14 Assets 15 Cash 16 Accounts receivable 17 Inventory 18 Total current assets 19 Gross fixed assets 20 Accumulated depreciation $ 10,000 25,000 62,500 $ 97,500 $ 50,000 14.000) $ 15,000 37,500 93.750 $146,250 $ 50,000 (8,000) Equations for Year 1 Year 2 -84-85 -C4C5 -34*86 -C4C6 -8487 -C4C7 SUMB15:317 - SUMICIS.C17) B8 CS Depreciation expense Accumulated for year 1 depreciation expense for years 1 and 2 -319-820 -C19+020 -318-821 -C18+021 $ 46,000 $143.500 $ 42,000 $188 250 21 Net fixed assets 22 TOTAL ASSETS 22 24 Debt Llabilities and Equity 25 Accounts payable 26 Accrued expenses 27 Short term line of credit 2 Total current liabilities 29 Mortgage $ 20,000 10,000 9,500 $ 39,500 27.000 $ 30,000 15,000 11.875 $ 56,875 24,000 -34989 -849310 Required financing SUMB25-827) Original loan of $30,000 annual payment of $3,000 -SUM(8288291 -C4C9 -C4C10 Required financing SUMICIS.C27) Year 1 balance of $27,000-annual payment of $3.000 SUMC28.029 $ 66,500 $ 80,875 30 Total debt 31 Ownership equity 32 Common stock 33 Retained earnings $110,000 33,000) $110,000 2,625) Given Year 1 loss Given Year 1 loss .year 2 proft -SUMC203) -SUMICIOC33) $ 77,000 $143.500 5107,375 $168.250 34 Total ownership equity 35 TOTAL DEBT AND EQUITY 36 37 Current ratio 30 Debt ratio -SUM(832 833) SUMB30.833) $ 247 $ 2.57 -B18/828 -B3/B35 C18/C22 Co/cas 30 Parts Developing the New Venture Business Plan Dameriyle 11.4 Pro Forma Balance Sheets for D&R Products, Inc. IISIN X END OF YEAR 1 END OF YEAR 2 ASSETS ASSETS $100,250 Cah 515.000 510500 Ce $10,000 $180,000 $140,000 4 elles $160,000 $120,000 Accounts receivable 525,000 low of sales Accounts receivable 137.500 10 of $140,000 $100,000 $120,000 $80,000 intory 562.500 25 of sales $100,000 $80,000 Inventory 191756 25% of sales $60,000 $60,000 $40,000 $40,000 550.000 original cost of building equipment 1.000 depreciation $20,000 550.000 original cost of building equipment 58.000 accumulated depreciation 540,000 $20,000 Netfadas $42.000 $0 SO DEBT & EQUITY DEBT & EQUITY $10.250 $14.500 $140,000 $180,000 Accounts payable $30,000 of sale of sales $160,000 $120,000 Accounts payable 520,000 Acord expenses STD.DOC Shortco credit $8.500 Morge $27.000 $140,000 4 of sales Line of credit needed to make debt and equity-totalets Accrued expenses 515.000 Short termined Credit, 11.875 Mortgage 124000 $100,000 $120,000 4 of sales Line of credit needed to make debt and yolets 310.000 beginning mortgage-principal payment of $1,000 in you and $1.000 in $80,000 $100,000 530,000 beginning mortgage-59.000 Payment on principal $60,000 $80,000 $60,000 $40,000 Total owner 510738 37 $110.000 commen stock-the $33,000 los in year 1 shown in retained earnings $40,000 -$110.000 con stock-the $2.625 fons in a cumulative retained earning $20,000 $20,000 50 $0 Year 1 Year 2 2. To bring sources of financing into balance with total assets, D&R Products will need to borrow on the company's $25.000 line of credit By the end of the first