Complete the following case study questions below:

We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank. This statement by Beth Davies-Lowry, president of Global Electronics Company, concluded a meeting she had called with the firmss top management. Global is a small, rapidly growing wholesaler of consumer electronic products. The firms main product lines are small kitchen appliances and power tools. Marcia Wilcox, Global Electronics general manager of marketing, has recently completed a sales forecast. She believes the companys sales during the first quarter of 20x1 will increase by 10 percent each month over the previous months sales. Then Wilcox expects sales to remain constant for several months, Globals projected balance sheet as of December 31, 20x0 is as follows:

Cash $70,000

Account receivable. 540,000

Marketable securities...................................... 30,000

Inventory... 308,000

Building and Equipment (net of accumulated depreciation) 1,252,000

Total Assets $2,200,000

Accounts payable$ 352,800

Bond Interest payable.. 25,000

Property taxes payable. 7,000

Bonds payable (10% due in 20x6).. 600,000

Common stock 1,000,000

Retained earnings 215,000

Total liabilities and stockholders equity$2,200,000

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1. Projected sales for December of 20x0 are $800,000. Credit sales typically are 75 percent of total sales. Globals credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.

2. Global Electronics cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each months purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next months projected cost of goods sold.

3. Hanson has estimated that Globals other monthly expenses will be as follows:

Sales salaries.. $42,000

Advertising and promotion 32,000

Administration salaries.. 42,000

Depreciation.. 50,000

Interest on bonds 5,000

Property taxes 1,800

In addition, sales commissions run at the rate of 1 percent of sales.

4. Global Eletronics president, Davies-Lowery, has indicated that the firm should invest $250,000 in an automated inventory-handling system to control the movement of inventory in the firms warehouse just after the new year begins. These equipment purchases will be financed primarily from the firms cash and marketable securities. However, Davies-Lowery believes that the company needs to keep a minimum cash balance of $50,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit form a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowery has decided it should be paid off by the end of the first quarter if possible.