4. Assuming that the company operated at 90% capacity in 2020, re-calculate Proforma Total Assets in 2021. (5 points) 5. How would you approach predicting next year's sales growth? Explain. (5 points) CASE 2 (20 points) The following data are available for the budget preparation of Ramsey Corporation: February March April Total sales $200 $220 $180 Cash purchases 70 80 60 Credit purchases 40 30 40 Labor and administrative expenses 30 30 30 Taxes, interest, and dividends 10 10 10 Capital expenditures 100 0 0 Additional information: Half the company's sales are transacted on a cash basis. The other half are paid for with a 1-month delay. The company pays all of its credit purchases with a 1-month delay. Credit purchases in January were $30. Total sales in January were $180. Cash balance at 1 February was $100. Instructions: a) Using the above information, complete the following cash budget. Show separately your calculations for cash collections and payments for purchases. (15 points) February March April Beginning cash balance ? ? ? Cash receipts: Cash sales ? ? ? Cash collections from credit sales ? ? ? Total cash available ? ? ? Cash disbursements: Cash purchases ? ? ? Payments for credit purchases ? ? ? Labor and administrative expenses ? ? ? Capital expenditures ? ? ? Taxes, interest, and dividends ? ? ? Total cash disbursements ? ? ? Ending cash balance ? ? ? b) Explain the role of cash budget. (5 points) CASE 3 (20 points) Lisa Corporation has 1,425,000 in current assets, out of which 637,500 are considered permanent current assets. In addition, the firm has 1,125,000 invested in fixed assets. Earnings before interest and taxes are estimated at 500,000. The company has two financing plans under consideration: Plan 1: Lisa wishes to finance all fixed assets and permanent current assets with long-term financing costing 9 percent. Its temporary current assets will be financed with short-term financing, which currently costs 5 percent. The tax rate is 30 percent. Plan 2: As an alternative, Lisa might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same tax rate and interest rates apply as in Plan 1. Instructions: a) Determine Lisa's earnings after taxes under each financing plan. (10 points) b) Which plan should Lisa choose? Justify. (5 points) c) What are some of the risks and cost considerations associated with each of these financing plans? (5 points) CASE 4 (20 points) Consider the following situations: 1. Each business day, on average, a company writes checks totaling 65,000 to pay its suppliers. The usual clearing time for these checks is 2.4 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling 93,000. The cash from the payments is available after 1.7 days. Calculate the company's disbursement float, collection float, and net float. (5 points) 2. A company spends 300,000 a month to pay bills and maintains a lower cash balance limit of 50,000. The applicable interest rate is 5.28 percent and the fixed cost of transferring funds is 43. What is the optimal initial cash balance based on the BAT model? (5 points) 3. A company plans to borrow 500,000 for 180 days. It was agreed with the bank that the interest for all the period of the loan will be 30,000. Calculate the effective interest rate. (5 points) 4. A company is being offered credit terms 5/20, net 60 from its supplier. In order to take the discount, the firm will have to borrow the funds from the bank and pay interest at 14 percent. Should it proceed with the discount? (5 points)
