How do you create a short term financing plan??

Question #1 - (10 marks) Using the following projections and the template in Appendix A build a Pro-forma Income Statement for the expansion. The first few were part of Assignment #3. J & J Sports Inc. has estimated the following additional results for the first two years of expansion. Expected revenues for the first two years are as follows. o Sales for the 1st quarter of Year 3 are projected at $650,000. Q1 Year 1 ('000s) Q2 Q3 90.00 160.00 24 200.00 Q1 280.00 Year 2 ('000s) Q2 Q3 350.00 440.00 04 550.00 50.00 General and administrative expenses (wages, taxes, office etc.) are estimated to be $10,000 in Year 1 - Q1 and 20% of sales thereafter. Sales salaries and commissions are estimated to be 8% of sales. Accounts receivable at the beginning of this expansion are $0. o Collection period = 30 days Accounts payable at the beginning of the expansion are $0. o The Company quarterly purchases from suppliers = 50% of the next quarter's forecasted sales. o Suppliers are paid on average in 60 days. The company expects capital outlays in both Year 1 - Q1 of $40,000 and Year 2-Q1 of $20,000 each. The expansion will start with an initial cash loan from the parent company of $100,000. Interest on this loan is $2,500 per quarter. The company will pay back the full $100,000 in the Year 2-Q4. Interest on any additional short-term borrowing is expected to be 5% per quarter. The Company wishes to maintain a $100,000 minimum balance at all times to best manage its working capital and any unexpected commitments. The company tax rate is 35%. Question #2 - (10 marks - 500-750 words) a. Based on Question above, does the company require any short-term financing? Explain. b. If so, use the template in Appendix A to build a Short-Term Financing Plan. C. Based on all of the above does this look like a viable expansion? How would your results in Assignment #3 differ if we used these Net Cash Flows instead of the Net Incomes that we did use. Appendix A-Cash Budget Year 1 ('000s) Q2 Q3 Year 2 ('000s) Q2 Q3 Q1 Q4 Q1 Q4 16.67 146.67 Cash Collections Beginning receivables Sales Collection of accounts Ending receivables 0.00 50.00 30.00 53.33 160.00 200.00 66.67 280.00 93.33 116.67 350.00 440.00 90.00 550.00 33.33 76.67 136.67 186.67 253.33 326.67 410.00 513.33 16.67 30.00 53.33 66.67 93.33 116.67 146.67 183.33 183.33 Cash Disbursements Beginning A/P Purchases Payment of accounts Ending A/P 0.00 45.00 30.00 80.00 53.33 66.67 100.00 140.00 325.00 93.33 116.67 146.67 175.00 220.00 275.00 151.67 190.00 238.33 116.67 146.67 183.33 113.33 15.00 30.00 56.67 53.33 86.67 66.67 291.67 216.67 93.33 15.00 86.67 151.67 56.67 18.00 113.33 40.00 190.00 238.33 70.00 88.00 291.67 110.00 10.00 32.00 56.00 Total Cash Outflow Payment of Accounts General & admin. Expenses Sales salaries & commissions Capital expenditures Interest (2.5%) Total cash disbursements 4.00 7.20 12.80 16.00 22.40 28.00 35.20 44.00 40.00 20.00 2.5 2.5 2.5 2.5 2.5 71.50 2.5 84.37 2.5 171.83 2.5 290.50 133.97 252.57 364.03 448.17 Beginning cash balance Total cash collections Total cash disbursements Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) Year 1 ('000s) Year 2 ('000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 100.00 61.83 54.13 56.83 71.67 72.43 108.60 154.57 33.33 76.67 136.67 186.67 253.33 326.67 410 513.33 71.50 84.37 133.97 171.83 252.57 290.50 364.03 448.17 (38.17) (7.70) 2.70 14.83 0.77 36.17 45.97 65.17 61.83 54.13 56.83 71.67 72.43 108.60 154.57 219.73 (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (38.17) (45.87) (43.17) (28.33) (27.57) 8.60 54.57 119.73 Short-Term Financing Plan Year 2 ('000s) Q2 Q3 Q1 Q4 Year 1 ('000s) Q1 Q2 Q3 24 100 (38.17) (7.70) 2.70 14.83 0.77 36.17 45.97 65.17 Beginning cash balance Net cash inflow Ending Cash Balance (before borrowing) New short-term borrowing Interest on short-term borrowing Short-term borrowing repaid Ending cash balance (after borrowing) Minimum cash balance Cumulative surplus (deficit) Beginning short-term debt Change in short-term debt Ending short-term debt Question #1 - (10 marks) Using the following projections and the template in Appendix A build a Pro-forma Income Statement for the expansion. The first few were part of Assignment #3. J & J Sports Inc. has estimated the following additional results for the first two years of expansion. Expected revenues for the first two years are as follows. o Sales for the 1st quarter of Year 3 are projected at $650,000. Q1 Year 1 ('000s) Q2 Q3 90.00 160.00 24 200.00 Q1 280.00 Year 2 ('000s) Q2 Q3 350.00 440.00 04 550.00 50.00 General and administrative expenses (wages, taxes, office etc.) are estimated to be $10,000 in Year 1 - Q1 and 20% of sales thereafter. Sales salaries and commissions are estimated to be 8% of sales. Accounts receivable at the beginning of this expansion are $0. o Collection period = 30 days Accounts payable at the beginning of the expansion are $0. o The Company quarterly purchases from suppliers = 50% of the next quarter's forecasted sales. o Suppliers are paid on average in 60 days. The company expects capital outlays in both Year 1 - Q1 of $40,000 and Year 2-Q1 of $20,000 each. The expansion will start with an initial cash loan from the parent company of $100,000. Interest on this loan is $2,500 per quarter. The company will pay back the full $100,000 in the Year 2-Q4. Interest on any additional short-term borrowing is expected to be 5% per quarter. The Company wishes to maintain a $100,000 minimum balance at all times to best manage its working capital and any unexpected commitments. The company tax rate is 35%. Question #2 - (10 marks - 500-750 words) a. Based on Question above, does the company require any short-term financing? Explain. b. If so, use the template in Appendix A to build a Short-Term Financing Plan. C. Based on all of the above does this look like a viable expansion? How would your results in Assignment #3 differ if we used these Net Cash Flows instead of the Net Incomes that we did use. Appendix A-Cash Budget Year 1 ('000s) Q2 Q3 Year 2 ('000s) Q2 Q3 Q1 Q4 Q1 Q4 16.67 146.67 Cash Collections Beginning receivables Sales Collection of accounts Ending receivables 0.00 50.00 30.00 53.33 160.00 200.00 66.67 280.00 93.33 116.67 350.00 440.00 90.00 550.00 33.33 76.67 136.67 186.67 253.33 326.67 410.00 513.33 16.67 30.00 53.33 66.67 93.33 116.67 146.67 183.33 183.33 Cash Disbursements Beginning A/P Purchases Payment of accounts Ending A/P 0.00 45.00 30.00 80.00 53.33 66.67 100.00 140.00 325.00 93.33 116.67 146.67 175.00 220.00 275.00 151.67 190.00 238.33 116.67 146.67 183.33 113.33 15.00 30.00 56.67 53.33 86.67 66.67 291.67 216.67 93.33 15.00 86.67 151.67 56.67 18.00 113.33 40.00 190.00 238.33 70.00 88.00 291.67 110.00 10.00 32.00 56.00 Total Cash Outflow Payment of Accounts General & admin. Expenses Sales salaries & commissions Capital expenditures Interest (2.5%) Total cash disbursements 4.00 7.20 12.80 16.00 22.40 28.00 35.20 44.00 40.00 20.00 2.5 2.5 2.5 2.5 2.5 71.50 2.5 84.37 2.5 171.83 2.5 290.50 133.97 252.57 364.03 448.17 Beginning cash balance Total cash collections Total cash disbursements Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) Year 1 ('000s) Year 2 ('000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 100.00 61.83 54.13 56.83 71.67 72.43 108.60 154.57 33.33 76.67 136.67 186.67 253.33 326.67 410 513.33 71.50 84.37 133.97 171.83 252.57 290.50 364.03 448.17 (38.17) (7.70) 2.70 14.83 0.77 36.17 45.97 65.17 61.83 54.13 56.83 71.67 72.43 108.60 154.57 219.73 (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (38.17) (45.87) (43.17) (28.33) (27.57) 8.60 54.57 119.73 Short-Term Financing Plan Year 2 ('000s) Q2 Q3 Q1 Q4 Year 1 ('000s) Q1 Q2 Q3 24 100 (38.17) (7.70) 2.70 14.83 0.77 36.17 45.97 65.17 Beginning cash balance Net cash inflow Ending Cash Balance (before borrowing) New short-term borrowing Interest on short-term borrowing Short-term borrowing repaid Ending cash balance (after borrowing) Minimum cash balance Cumulative surplus (deficit) Beginning short-term debt Change in short-term debt Ending short-term debt