Cash Flow

Franklin Co., a specialty retailer, has a history of paying quarterly dividends of $0.50 per share. Management is trying to determine whether the company will have adequate cash on December 31, 2018, to pay a dividend if one is declared by the board of directors. The following additional information is available:

• All sales are on account, and accounts receivable are collected one month after the sale. Sales volume has been increasing 5% each month.
• All purchases of merchandise are on account, and accounts payable are paid one month after the purchase. Cost of sales is 40% of the sales price. Inventory levels are maintained at $74,400.
• Operating expenses in addition to the mortgage are paid in cash. They amount to $3,010 per month and are paid as they are incurred.

Franklin Co. Balance Sheet September 30, 2018
Cash	$4,945		Accounts payable	$5,080
Accounts receivable	12,700		Mortgage note**	150,000
Inventory	74,400		Common stock - $1 par	50,000
Note receivable*	10,400		Retained earnings	66,365
Building/Land	169,000		Total liabilities and
Total assets	$271,445		stockholders' equity	$271,445

*Note receivable represents a one-year, 5% interest-bearing note due November 1, 2018.

**Mortgage note is a 30-year, 7% note due in monthly installments of $1,200.

Required:

1. Determine the cash that Franklin will have available to pay a dividend on December 31, 2018. Round intermediate calculations and final answer amount to the nearest dollar. $

2. What can Franklin's management do to increase the cash available?

• lengthen the average amount of time taken to pay for purchases of inventory.
• Reduce inventory levels.
• Reduce operating expenses.
• Speed up the collection of receivables.
• None of the above.
• All of the above.

3. Should management recommend that the board of directors declare a dividend? Explain.

• Management should not recommend the normal quarterly dividend of $0.50 per share because Franklin has cash to barely be able to meet the dividend payment.
• Management should recommend the normal quarterly dividend of $0.50 per share because Franklin has enough cash to meet the dividend payment.
• Management should not recommend the normal quarterly dividend of $0.50 per share because Franklin has not been able to generate sufficient profits to declare dividends.