CASE ABC Corp. provides alarm system installations, monitoring and repairs. They have been in business 25 years, and for the most part things have been good. ABC has experienced steady growth over the years and now provides monitoring services for 500,000 homes across Canada. Its target is to install new systems in 30,000 homes in the upcoming year. It has had a few growing pains and has found it difficult to hold onto good management-level employees. The other concern for the CEO has been cash flow. In the past, the CEO and CFO have simply taken the previous years budget and adjusted for inflation and an estimated percentage increase in sales. This has unfortunately led to some cash flow problems, and on a few occasions the company came close to not being able to cover its payroll and had to scurry to the bank to arrange for emergency short term financing. They know that they wont be able to continue to access funds at the last minute but are unsure as to how to anticipate their cash shortfalls. They are looking at making some large purchases in the first quarter of 2024 of $3,500,000, but theyre not sure if they will need to borrow that much. They anticipate having $820,000 in cash at the end of 2023, so are assuming that they will need to borrow at least $2,680,000. Both the CEO and CFO were part of the founding team for the company. John A., the CEO, and Frederika B., the CFO, along with a couple of friends, were able to put some money together to buy a small security system 25 years ago when they had graduated from college, and they have slowly built it into a national corporation. John and Fredrika had worked for ABC (as installers) when they were students and purchased the company when the owner retired. Theyve learned well and know the ins and outs of the running the company through experience, trial and error, and a lot of guidance from friends and family. Last week, they were describing their cash flow problem to Diana, a friend (& CPA), and she said that she would help them forecast their cash needs. They gathered all their info. and sent it to her. They are hoping that this year they will enable them to improve the strained relationship with their bank. Heres the info. Sales Pricing: New installations................................................ $400each Monitoring package............................................ $30 per month Repairs............................................................... $100 on average per repair Cash is received for revenues, with 60% collected in the quarter in which the work was done, 2% never collected, and the remainder collected in the quarter after the revenues are recorded. They anticipate the following workload:

Q4 (2023) Q1 (2024) Q2 (2024) Q3 (2024) Q4 (2024) Total Q1 (2022) MONITORING 495,00 0 500,0 00 506,0 00 513,5 00 521,0 00 2,040,50 0 530,0 00 NEW INSTALLS 5,00 0 6,00 0 7,50 0 7,50 0 9,00 0 30,0 00 8,00 0 REPAIRS ARE 1% OF MONITORING 4,95 0 5,00 0 5,06 0 5,13 5 5,21 0 20,4 05 5,30 0 Labour: Installations are done in teams of two technicians who work full-time. Each team has one senior installer and one junior installer. The senior installer earns $35 per hour, and the junior installer earns $25 per hour (on an assumption of 160 hours per month). They need a technician team for every 300 installations or repair jobs that need to be done. They do the hiring at the beginning of the quarter in which they are needed. The monitoring centre is housed in one location and serves all customers across Canada. They hire one full-time employee for every 5,000 customers. Monitoring-centre staff earn $15 per hour. One manager and 0.5 of an administrative person are needed for each region. There are 20 regions across Canada. Managers earn $45,000 per year, and administrative staff earn a total of $22,500 for their part-time work. All employees are part of a benefits plan that costs ABC an additional 30% (including the costs of provincial and federal mandatory payroll benefits such as CPP, EI, health insurance, and so on). Cash is paid to employees, with 87.5% of payroll paid in the quarter in which the employee worked and 12.5% in the following quarter. Benefits are paid 100% in the quarter after the employee worked. Expenses: ABC purchases one complete system of hardware at $150 each for each new system to be installed, and they order one complete system for every five repairs that need to be done. They have found it cheaper to purchase the system that will then typically provide enough hardware to do five repairs than to purchase individual parts for repairs. They order enough to have a buffer of 5% of the next quarters new installations and 20% of the next quarters repairs. Accounts payable for the systems is $625,000 at the end of 2023, and they pay 40% of the purchases in the quarter of purchase and 60% in the following quarter. Other expenses, including selling costs, and all administrative and general costs, are expected to be as follows: Q4 (2023) - $11,870,000 Q1 (2024) - $12,025,000 Q2 (2024) - $12,673,000 Q3 (2024) - $13,224,000 Q4 (2024) - $13,576,000 Ninety percent of the other expenses are paid in the quarter in which they are incurred, with the remaining 10% being paid in the following quarter