Airbird Inc. is an air cargo transport company operating out of Canada. Currently, Airbird flies routes between British Columbia and Quebec. It is a private company that is owned equally by two brothers, Bob and Jim.

They hired John for the position of Chief Financial Officer. I have been hired to help John by providing him with financial information and analysis.

I have been provided with the company's most recent financial statements and the following information:

Capital structure:

? Airjet's long-term debt consists of two bonds:

1. Bond A Series consists of 20,000 bonds with a face value of $1,000 each maturing in five years. The bonds have a coupon rate of 9%, payable semi-annually. Similar bonds in the market with similar risk currently have a yield of 6%.

2. Bond B Series consists of 30,000 bonds with a face value of $1,000 each maturing in 15 years. The bonds have a coupon rate of 10%, payable semi-annually. Similar bonds in the market with similar risk currently have a yield of 7.5%.

? In late 2014, Airbird issued 6,000 preferred shares to another private investor for $100 each. The preferred shares have a non-cumulative stated annual dividend rate of $8.50 per share. The current market price is estimated to still be $100 per share.

? Bob and Jim each own 500,000 common shares of the company. A recent valuation has estimated the current market price of these shares to be $52 per share.

Current operations:

? The company primarily sells its services to companies in the courier, mining and construction industries.

? Revenues are expected to increase by 7% for 2015.

? The company's current credit policy is net 30 days. The company has only 15 customers in total. However, since these customers rely on timely delivery, they always settle their accounts on time. Historically, the company has had minimal bad debts.

? Inventory consists of fuel, enough for only seven days. The company has inventory on hand (fuel) for 7 days.

? The year-end accounts payable include trade payables of $10,520,000 (for aircraft costs, fuel and other operating costs) and payment due on new equipment of $7,790,000 (received prior to the year-end and included in PP&E is Property, plant and equipment). Suppliers are normally paid within 45 days, which are the standard terms in the industry.

? Direct costs will grow at the same rate of sales, with the exception of crew costs. Crew costs are expected to only increase 3% due to the contractual agreement in place.

? General and administration costs will increase by 2% for 2015 and are paid in the same month as incurred.

? Selling and marketing costs will increase by 4% and are paid in the same month as incurred.

? First quarter taxes payable are $647,000 and are paid in the same month as incurred.

? Dividends on the preferred shares will be paid in the first quarter.

? During 2014, dividends on the common shares totaling $2 million were paid. The same amount of dividends will be paid in 2015.

? Interest is paid on the outstanding bonds on January 31 and July 31.

Balance Sheet as at December 31, 20x4 (in $0005) 5 ASSETS Current Cash 450 Accounts receivable 11,290 Inventory 870 12,610 Property, plant and equipment Land 1,890 Buildings 13,820 Aircraft 34,060 Ground equipment 16,290 Office equipment 5,9?0 72,030 Total assets 84,640 LIABILITIES Current Trade and other payables 18,310 Non-current Long-term debt 48,?80 Total liabilities 67,090 Shareholders' equity Preferred shares 600 Common shares 9T5 Retained earnings 15,9?5 Total shareholders' equity 1?,550 Total liabilities and shareholders' equity 84,640 Income Sheet for the year December 31, 20x4 (in $'0005) $ Revenue 141,171 Direct expenses Aircraft costs 21 ,370 Crew costs 11,560 Depreciation 9,670 Fuel costs 48,160 Other operating costs 15,820 106,580 Other costs General and administration 19,560 Sales and marketing 630 20,190 Operating income 14,401 Interest expense 3,910 Earnings before taxes 10,491 Income taxes 2 623 i Net income 7 868 i QUESTION Bob and .Jim would like to receive their annual dividend of $2 million on March 31, 2015. However, they are concerned that there might not be enough cash available to make this payment. Using the assumptions noted above, make a cash budget for the rst quarter of 2015 and make a conclusion as to whether the company will have adequate cash available to afford the requested dividend payment. Assume that sales, purchases and expenses ooour evenly over the 365 days and that the dividends on the preferred shares will be paid regardless of whether the common-share dividend is paid