Forecasting, Budgeting, and Projecting Requirements

8. This and the following two problems demonstrate that pro forma forecasts, cash budgets, and cash flow forecasts all yield the same esti- mated need for external financingprovided you dont make any mis- takes. For problems 8, 9, and 10, you may ignore the effect of added borrowing on interest expense.

The treasurer of Pepperton, Inc., a wholesale distributor of house- hold appliances, wants to estimate his companys cash balances for the first three months of 2012. Using the information in the following chart, construct a monthly cash budget for Pepperton for January 2012 through March 2012. Does it appear from your results that the treasurer should be concerned about investing excess cash or looking for a bank loan?

Pepperton Selected Information
Sales (20% for cash, the rest on 30-day credit)
2011 Actual
October	$360,000
November	420,000
December	1,200,000
2012 Projected
January	$600,000
February	240,000
March	240,000
Purchases (all on 60-day terms
2011 Actual
October	$510,000
November	540,000
December	1,200,000
2012 Projected
January	$300,000
February	120,000
March	120,000
Wages payable monthly		$180,000
Principal pyt on debt due march		90,000
Interest due march		90,000
Dividend payable in March		300,000
Taxes payable in february		180,000
Addition to accum. Deprec March		30,000
Cash balance on Jan.1 2012		300,000
Minimum desired cash Balance		150,000