1. [Statement of Cash Flows and Cash Burn or Build] Salza Technology Corporation increased its sales from $375,000 in 2009 to $450,000 in year 2010 as is shown in the firm's income statements presented below. LeAnn Sands, chief executive officer (CEO) and founder of the firm expressed concern that the cash account and the firm's marketable securities declined substantially between 2009 and 2010. Salza's complete balance sheets are also shown below. Ms. Sands is seeking your assistance in the preparation of a statement of cash flows for Salza Technology. SALZA TECHNOLOGY CORPORATION Annual Income Statements (in $ Thousands) 2020 $450 150 180 2019 Net sales $375 Less: Cost of goods sold 225 270 Gross profit Less: Operating expenses 46 Less: Depreciation 30 Less: Interest 4 Income before taxes 46 25 4 75 100 Less: Income taxes 20 30 Net income 55 70 $17 Cash dividends $20 Balance Sheets as of December 31 (in $ Thousands) 2019 2020 $ 39 $ Cash 16 Accounts receivable 50 80 Inventories 151 204 Total current assets 240 300 Gross fixed assets 200 290 Less accumulated depreciation -125 Net fixed assets 105 165 Total assets $345 $465 Accounts payable $ 30 $ 45 Bank loan 20 27 Accrued liabilities 10 23 Total current liabilities 60 95 Long-term debt 15 15 Common stock 85 120 Retained earnings 185 235 Total liabilities and equity $345 $465 A. Prepare a statement of cash flows for 2020 for the Salza Technology Corporation. B. Provide a brief description of what happened in terms of cash flows (both inflows and outflows) for Salza between years 2019 and 2020. C. Use your calculations from Part A for cash flows from operating and investing activities to indicate the extent to which Salza was building or burning cash in 2020. D. Convert the 2020 annual cash build or cash burn to a monthly rate. If cash flow activities relating to operations and investing for 2020 continue into 2021, indicate: (1) how long it will be before Salza runs out of cash (if Salza is burning cash), or (2) the expected 2021 year-end cash account balance if Salza is building cash. Assume no changes in cash flows from financing activities in 2021 for calculation purposes. 2. [Survival Revenues Breakeven] LeAnn Sands wants to conduct operating breakeven analyses of the Salza Technology Corporation for year 2020. Income statement information is shown in Problem 1 above. For year 2020, the firm's cost of goods sold is considered to be variable costs and operating expenses are considered to be fixed cash costs. Depreciation expenses in year 2020 also are expected to be fixed costs. Calculate Salza's EBDAT breakeven in terms of survival revenues for year 2020. 3. (Survival Revenues Breakeven] LeAnn Sands has reason to believe that year 2021 will be a replication of year 2020 except that cost of goods sold are expected to be 65 percent of the estimated $450,000 in revenues. Other income statement relationships are expected to remain the same in year 2021 as they were in year 2020. Calculate the EBDAT breakeven point for 2021 for Salza in terms of survival revenues
