could you please walk me through this problem and explain/show how you got answers. thank you
1. comstruct the 2020 cash budget for adams shoes (and explain the calculations for June 2020.)
2. construct a 2020 short term financial plan for adams shoes (and explain the short term financial plan for febuary 2020)
3. explain how large of a credit line mark would recommend the Treasuer of adams shoes requests from first federal bank.
In September 2019 you joined Adams Shoes, Inc. as the assistant to Mark Barrymore, the Budget Director of the company. Towards the end of December 2019 Mark asked you to prepare a cash budget and a financial plan for 2020. As he explained, he was going to use your input to appraise the company's short-term financing needs for 2020 and then make arrangements with First Federal Bank, the firm's bank, to secure the necessary funds. Mark indicated to you that the firm's Treasurer was planning to meet with First Federal Bank's loan officer on December 30, 2019 to request a line of credit. To facilitate your task, Mark provided an abundance of valuable information for what he referred to as the "most likely scenario." Adams Shoes sells its products (dress and casual shoes, sport shoes, work boots, and accessories) in the U.S. and abroad. Upon Mark's request, the firm's marketing department has supplied the following sales figures: 2019 November $620,000 December 670,000 2020 January February March April May June July August September October November December 750,000 780,000 800,000 600,000 550,000 600,000 650,000 680,000 700,000 750,000 680,000 700,000 2021 January 800,000 February 820,000 The sales for the last two months of 2019 are actual figures; the sales for 2020 and 2021 are expected (or estimated) figures. Mark also indicated to you that Adams Shoes gives a two percent discount if payment is made within the month of sale; otherwise, payment in full is due in the month following the month of the sale. For example, if a $2,000 sale is made on January 5, payment will be $1,960 for customers who pay in the month of January but customers who pay in the month of February must pay the full $2,000. Nevertheless, company records show that three percent of the sales are never collected (i.e., three percent of the customers do not pay for their purchases) while the balance is collected as follows: 25 percent of the firm's paying customers take the discount, 65 percent pay within the month following the month of the sale, while the remaining 10 percent "stretch the credit" and pay in full two months after the month of the sale. Furthermore, Mark pointed out that production of goods starts two months before the anticipated date of sale. Production is based on the expected (or estimated) sales posted above, meaning that all production expenses are set by contract at the start of the one year forecast period. As a result, Adams Shoes will not be able to adjust its production costs downward during the planning period even if sales turn out to be below the forecasted levels. Variable production costs consist of labor and raw materials. Labor costs are 40 percent of expected sales; 45 percent of the labor costs are paid two months prior to the sale and 55 percent one month before the sale. Raw materials are 35 percent of forecasted sales. Adams Shoes buys the raw materials two months before the sale of the finished goods; however, it pays 60 percent of the raw materials cost one month after their purchase and the remaining 40 percent in the month following the sale of the finished goods. Regarding the firm's other costs Mark explained that in 2020 Adams Shoes expects its fixed costs to be $25,000 a month, its selling, general and administrative expenses to be $70,000 a month, and its miscellaneous expenses to be $35,000 a month. In addition, 2020 Federal and state income tax payments of $150,000 must be made in March and September. Also, the company plans to buy a $500,000 piece of equipment in November of 2020. Depreciation of the existing fixed assets of Adams Shoes is expected to amount to $100,000 per month in 2020. On the financing side, Adams Shoes has an outstanding bank loan of $1,500,000 with an annual interest rate of five percent; interest for 2020 is scheduled to be paid semiannually in June and December. Adams Shoes also has one million shares of common stock outstanding and in 2020 it expects to pay a $.10 quarterly dividend per share in March, June, September, and December. However, Mark explained that Adams Shoes owns shares of preferred stock in some blue chip companies and expects to collect a quarterly amount of $75,000 of preferred dividends in March, June, September, and December 2020. Finally, Mark explained to you that Adams Shoes requires a minimum cash balance of $200,000 at all times, this amount will be on hand on January 1, 2020. Adams Shoes deposits any surplus funds, in a savings account at First Federal Bank which pays an annual interest rate of one percent; assume that money in this savings account on the first of a month will earn interest for the full month. Nevertheless, if the company needs to borrow funds, First Federal Bank has agreed to provide the funds at a three percent annual interest rate; assume that Adams Shoes will pay interest for the full month on any short-term debt outstanding at the beginning of a month
