I need help with part e).

6 7 Rusty Spears, CEO of Rusty's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts of 2014 and 2015. 9 Estimates obtained from the credit and collection department are as follows: collections within the month of 10 sale, 15%; collections during the month following the sale, 65%; collections the second month following the 11 sale, 20%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as 12 shown in the table. 13 14 General and administrative salaries will amount to approximately $15,000 a month; lease payments under long- 15 term lease contracts will be $5,000 a month; depreciation charges will be $7,500 a month; miscellaneous 16 expenses will be $2,000 a month; income tax payments of $25,000 will be due in both September and 17 December; and a progress payment of $80,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $60,000, and a minimum cash balance of $40,000 will be maintained throughout the cash budget period. 20 Input Data 21 Collections during month of sale 22 Collections during month after sale 23 Collections during second month after sale 24 Lease payments 25 Target cash balance 26 General and administrative salaries 27 Depreciation charges 28 Income tax payments (Sep & Dec) 29 Miscellaneous expenses 30 New office suite payment (Oct) 31 Cash on hand July 1 15% 65% 20% $5,000 $40,000 $15,000 $7,500 $25,000 $2,000 $80,000 $60,000 Note: When the percent collected during the second month after sale is changed, the percent for collections during month after sale is automatically changed so that 100% of sales are collected during the three-month period. 32 33 Sales, labor, and RM adjustment factor 34 35 a. Prepare a monthly cash budget for the last six months of the year. 36 37 May June July 38 Original sales estimates $60,000 $100,000 $130,000 39 Original labor and raw mat. estimates $75,000 $90,000 $95,000 August September October November December $120,000 $100,000 $80,000 $60,000 $40,000 $70,000 $60,000 $50,000 $20,000 $20,000 January $30,000 40 $60,000 $100,000 $130,000 $120,000 $100,000 $80,000 $60,000 $40,000 $30,000 41 Forecasted Sales 42 Sales (gross) 43 44 Collections 45 During month of sale 46 During 1st month after sale 47 During 2nd month after sale 48 Total collections 19500 $65,000 $12,000 $96,500 18000 15000 12000 $84,500 $78,000 $65,000 $20,000 $26,000 $24,000 $122,500 $119,000 $101,000 9000 6000 $52,000 $39,000 $20,000 $16,000 $81,000 $61,000 49 50 Purchases 51 Labor and raw materials 52 Payments for labor and raw materials $75,000 $90,000 $95,000 $90,000 $70,000 $95,000 $60,000 $70,000 $50,000 $60,000 $20,000 $50,000 $20,000 $20,000 54 Payments 55 Payments for labor and raw materials 56 General and administrative salaries 57 Lease payments 58 Miscellaneous expenses 59 Income tax payments 60 Design studio payment 61 Total payments 90,000 15,000 5,000 2,000 95,000 70,000 60,000 15,000 15,000 15,000 5,000 5,000 5,000 2,000 2,000 2,000 25,000 80,000 $117,000 $117,000 $162,000 50,000 15,000 5,000 2,000 20,000 15,000 5,000 2,000 25,000 $112,000 $72,000 $67,000 63 Net Cash Flows 64 Cash on hand at start of forecast period 65 Net cash flow (NCF): Total collections - Total payments 66 Cumulative NCF: Prior month cumulative + this month's NCF $60,000 ($ 15,500) $44,500 $5,500 $50,000 $2,000 $52,000 ($61,000) ($9,000) $9,000 ($0) ($6,000) ($6,000) 67 68 Cash Surplus (or Loan Requirement) 69 Target cash balance 70 Surplus cash or loan needed: Cum NCF - Target cash $40,000 $4,500 $40,000 $10,000 $40,000 $12,000 $40,000 $40,000 $40,000 ($49,000) ($40,000) ($46,000) 71 72 Max. Loan S49,000 Maximum Loan Required % of Collections in 2nd Month Change in Sales 49,000 0 20% Jos 60% 75% 95. If its customers began to pay late, this would slow down collections and thus increase the required loan amount. Also, 96 if sales dropped off, this would have an effect on the required loan. Do a sensitivity analysis that shows the effects of 97 these two factors on the max loan requirement. Assume the purchases of labor and raw material also vary by the sales 98 adjustment factor. 101 -100% $ 75% $ -50% $ 25% $ 0% $ 25% $ 50% $ 75% $ 100% $ 242.000 193.000 144.000 95.000 46,000 $ 40,000 8.000 IS 18.000 (19.750) $ 750) (23,375) $ 9,375) (27.000) $ (11.000) $3,000 59.000 65.000 $ 71.000 77.000 102 103 104 105 106 6 7 Rusty Spears, CEO of Rusty's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts of 2014 and 2015. 9 Estimates obtained from the credit and collection department are as follows: collections within the month of 10 sale, 15%; collections during the month following the sale, 65%; collections the second month following the 11 sale, 20%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as 12 shown in the table. 13 14 General and administrative salaries will amount to approximately $15,000 a month; lease payments under long- 15 term lease contracts will be $5,000 a month; depreciation charges will be $7,500 a month; miscellaneous 16 expenses will be $2,000 a month; income tax payments of $25,000 will be due in both September and 17 December; and a progress payment of $80,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $60,000, and a minimum cash balance of $40,000 will be maintained throughout the cash budget period. 20 Input Data 21 Collections during month of sale 22 Collections during month after sale 23 Collections during second month after sale 24 Lease payments 25 Target cash balance 26 General and administrative salaries 27 Depreciation charges 28 Income tax payments (Sep & Dec) 29 Miscellaneous expenses 30 New office suite payment (Oct) 31 Cash on hand July 1 15% 65% 20% $5,000 $40,000 $15,000 $7,500 $25,000 $2,000 $80,000 $60,000 Note: When the percent collected during the second month after sale is changed, the percent for collections during month after sale is automatically changed so that 100% of sales are collected during the three-month period. 32 33 Sales, labor, and RM adjustment factor 34 35 a. Prepare a monthly cash budget for the last six months of the year. 36 37 May June July 38 Original sales estimates $60,000 $100,000 $130,000 39 Original labor and raw mat. estimates $75,000 $90,000 $95,000 August September October November December $120,000 $100,000 $80,000 $60,000 $40,000 $70,000 $60,000 $50,000 $20,000 $20,000 January $30,000 40 $60,000 $100,000 $130,000 $120,000 $100,000 $80,000 $60,000 $40,000 $30,000 41 Forecasted Sales 42 Sales (gross) 43 44 Collections 45 During month of sale 46 During 1st month after sale 47 During 2nd month after sale 48 Total collections 19500 $65,000 $12,000 $96,500 18000 15000 12000 $84,500 $78,000 $65,000 $20,000 $26,000 $24,000 $122,500 $119,000 $101,000 9000 6000 $52,000 $39,000 $20,000 $16,000 $81,000 $61,000 49 50 Purchases 51 Labor and raw materials 52 Payments for labor and raw materials $75,000 $90,000 $95,000 $90,000 $70,000 $95,000 $60,000 $70,000 $50,000 $60,000 $20,000 $50,000 $20,000 $20,000 54 Payments 55 Payments for labor and raw materials 56 General and administrative salaries 57 Lease payments 58 Miscellaneous expenses 59 Income tax payments 60 Design studio payment 61 Total payments 90,000 15,000 5,000 2,000 95,000 70,000 60,000 15,000 15,000 15,000 5,000 5,000 5,000 2,000 2,000 2,000 25,000 80,000 $117,000 $117,000 $162,000 50,000 15,000 5,000 2,000 20,000 15,000 5,000 2,000 25,000 $112,000 $72,000 $67,000 63 Net Cash Flows 64 Cash on hand at start of forecast period 65 Net cash flow (NCF): Total collections - Total payments 66 Cumulative NCF: Prior month cumulative + this month's NCF $60,000 ($ 15,500) $44,500 $5,500 $50,000 $2,000 $52,000 ($61,000) ($9,000) $9,000 ($0) ($6,000) ($6,000) 67 68 Cash Surplus (or Loan Requirement) 69 Target cash balance 70 Surplus cash or loan needed: Cum NCF - Target cash $40,000 $4,500 $40,000 $10,000 $40,000 $12,000 $40,000 $40,000 $40,000 ($49,000) ($40,000) ($46,000) 71 72 Max. Loan S49,000 Maximum Loan Required % of Collections in 2nd Month Change in Sales 49,000 0 20% Jos 60% 75% 95. If its customers began to pay late, this would slow down collections and thus increase the required loan amount. Also, 96 if sales dropped off, this would have an effect on the required loan. Do a sensitivity analysis that shows the effects of 97 these two factors on the max loan requirement. Assume the purchases of labor and raw material also vary by the sales 98 adjustment factor. 101 -100% $ 75% $ -50% $ 25% $ 0% $ 25% $ 50% $ 75% $ 100% $ 242.000 193.000 144.000 95.000 46,000 $ 40,000 8.000 IS 18.000 (19.750) $ 750) (23,375) $ 9,375) (27.000) $ (11.000) $3,000 59.000 65.000 $ 71.000 77.000 102 103 104 105 106