Chapter 3, problem 14

a.Using the information provided, construct a monthly cash budget for October through December 2011. Based on your analysis, will Noble enjoy a surfeit of cash, or require external financing?

b.Construct a pro forma income statement for the first fiscal quarter of 2012 and a pro forma balance sheet as of December 31, 2011. What is your estimated external financing required for December 31?

c.Does the December 31, 2011, estimated external financing equal your cash surplus (deficit) for this date from your cash budget?

d.Based on your answers above, construct a cash flow forecast for Noble for the period October through December 2011.

Noble Selected Information and Financial Statements

Sales (20 percent for cash, the rest on 30-day credit terms):

2011 Actual 2011Projected

July August September October November December

76k 88k 266k 125k 51k 53k

Purchases (all on 60-day terms):

2011 Actual 2011 Projected

July August September October November December

116k 122k 257k 62k 27k 26k

Salaries payable monthly:20k

Principal payment on debt due in December:25,700

Interest due in December:9k

Dividend payable in December:15k

Taxes payable in November:19k

Addition to accumulated depreciation in December:4k

Cash balance on October 1, 2011:35k

Minimum desired cash balance: 15k

Nobles annual income statement and balance sheet for September 30, 2011 appear below. Additional information about the company's accounting methods and expectations for the last three months of 2011 appear in the footnotes.

Noble Annual Income Statement

Fiscal Year ended September 30, 2011 ($ 000)

Net sales:1581.6

Cost of goods sold1:1098.0

Gross profits: 483.6

Selling and administrative expenses2:240.0

Interest expense:18.0

Depreciation3:16.0

Net profit before tax: 209.6

Tax at 33%:69.2

Net profit after tax:140.4

Noble Balance Sheet

September 30, 2011 ($000)

Assets

Cash:34.0

Accounts receivable:212.8

Inventory:425.0

Total current assets:671.8

Gross fixed assets:135.0

Accumulated depreciation:52.0

Net fixed assets:83.0

Total assets:754.8

Liabilities

Bank Loan:0.0

Accounts Payable:379.0

Accrued Expenses:55.0

Current portion long-term debt5:25.7

Taxes payable:56.0

Total current liabilities:515.7

Long-term debt:120.0

Shareholders' equity:119.1

Total liabilities and equity:754.8

1- Cost of goods sold consists entirely of items purchased during the quarter.

2- Selling and administrative expenses consist entirely of salaries.

3-Depreciation is straight-line at the rate of $4,000 per quarter.

4-Accrued expenses are not expected to change in the last quarter.

5-$25.7 due December 2011. No payments for remainder of year.