Adams Corporation manufactures fasteners. The company's income statements for three years are indicated in Exhibit 1. The balance Sheets for the same period are shown in Exhibit 2. Exhibit 1 ADAMS CORPORATION Income Statement 2017 Sales (all on credit). $1,500,000 Cost of goods sold. 950,000 Gross profit....... 550,000 Selling and administrative expense. 380,000 Operating profit.. 170,000 Interest expense. 30,000 Net income before taxes. 140,000 Taxes.... 46,120 Net Income. $93,880 Shares.. 40,000 2018 $1,800,000 1,120,000 680,000 490,000 190,000 40,000 150,000 48,720 $101,280 40,000 2019 $2,160,000 1,300,000 860,000 590,000 270,000 85,000 185,000 64,850 $120, 150 46,000 Adams Corporation has made the following projections 2020. All sales are on credit. April May June $24,000 16,000 18,000 July $28,000 August 35,000 September 38,000 Sales in February and March were $36,000 and $28,000, respectively. Experience has shown that of total sales, 5 percent of the sales are not collectible, 35 percent are collected in the month of sale, 50 percent are collected in the following month, and 10 percent are collected two months after sale. Total annual sales for the year 2020 are forecasted to be $2,500,000. Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the total material costs, 40 percent are paid in the month of purchase and 60 percent in the following month. Labour costs will run $6,000 per month, and fixed overheads is $3,000 per month. Interest payments on the debt will be $4,500 for both March and June. A cash dividend of $20,000 is scheduled to be paid in September. Tax payments of $3,500 are due in June and September Exhibit 2 2018 2019 $30,000 $20,000 35,000 50,000 230,000 330,000 285,000 325,000 580,000 725,000 720,000 1,169,000 $1,300,000 $1,894,000 ADAMS CORPORATION Balance Sheet Assets 2017 Cash. $20,000 Marketable securities. 30,000 Accounts receivable. 150,000 Inventory........ 250,000 Total Current Assets.. 450,000 Net Plant and equipment. 550,000 Total Assets... $1,000,000 Liabilities & Equity Accounts payable.... $100,000 Notes payable (bank). 100,000 Total Current liabilities.. 200,000 Long-term liabilities.. 250.000 Total liabilities... 450,000 Common stock ($10 par). 400,000 Capital paid in excess of par.. 50,000 Retained earnings.. 100,000 Total stockholders' equity... 550,000 Total liabilities and stockholders' equity. $1,000,000 $225,000 $200,000 100,000 300,000 325,000 500,000 331,120 550,740 656,120 1,050,740 400,000 460,000 50,000 80,000 193,880 303,260 643,880 843,260 $1,300,000 $1,894,000 Adams Corporation is evaluating three possible investment alternatives for 2020, and their probabilities of occurrence are given below in Exhibit 3: Exhibit 3: Adams Corporation investment choices Alternative 1 Alternative 2 Alternative 3 Outcomes Probability Outcomes Probability Outcomes Probability Failure $50 20% $90 30% $80 40% Acceptable 80 40% 160 50% 200 50% Successful 120 40% 200 20% 400 10% Question 2 (30 marks) (a) Determine the total cash receipts for each moth, April through September. (9 marks) (b) Determine the total cash payments for each moth, April through September. (9 marks) (C) Assuming that the firm has a cash balance of $22,000 at the beginning of April 2019, determine the end-of-month cash balances for each month, April through September. (9 marks) (d) Assuming that the firm wishes to maintain a $15,000 minimum cash balance, determine the monthly total financing requirements or excess cash balances
