Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Luke Ltd is considering to finance their acquisition of $100,000 in new equipment in year 1 Luke director board decided to borrow $90,000 from a

image text in transcribed
Luke Ltd is considering to finance their acquisition of $100,000 in new equipment in year 1 Luke director board decided to borrow $90,000 from a local bank. The bank has asked them to produce a 3-year cash flows broken down by year (Year 1, 2 and 3). Sales in the prior year were $100,000 and are expected to increase 20 percent each year so that sales of $120.000 are expected in the first year. Collections in the year of sale are expected to be 90 percent, with the remaining 10 percent collected in the next year, Purchases are based on an expected cost - 30 percent of sales and a required ending inventory of 20 percent of next year's sales. Prior year expenses included advertising expense of $2,500, depreciation expense of $500 wages expense of $20,000, supplies expense of $400, and utilities expense of $300. All expenses except depreciation and interest expenses are paid in the year in which they are incurred and are expected to increase 8 percent each year. Interest expertise is expected to remain constant at $600 each year for years 1 - 3. Payments in the year of purchase are expected to be 80 percent, with the remaining 20 percent paid in the next year. Proceeds from the $90,000 loan are expected in year 1, and $100,000 of equipment will be purchased during year 1. In subsequent years equipment purchases are expected to be $10,000 each year. Proceeds from projected equipment sales each year are expected to amount to $8,000 Annual payments of $30,000 on the loan also begin in year 1. The cash balance in the prior year was 526,400 and the beginning inventory in the prior year was 6.500 Taska Use Excel to create a cash flows statement based on the assumptions just provided. The Excel worksheet should include cash receipts, operating cash payment, cash from (to) Operating activities, cash from (to) investing activities, and cash from (to) financing activities...by using "define names and formulas". (45 marks) Task What is end-of-year cash if the sales growth each year were 25 percent and what annual sales growth would be needed to produce an ending cash balance of $200,000 in year 3. 15 marks) 2

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

How To Audit Anything The Pink Book Of Auditing Any Process

Authors: R. Alakbarov

1st Edition

1520195575, 978-1520195575

More Books

Students also viewed these Accounting questions

Question

find all matrices A (a) A = 13 (b) A + A = 213

Answered: 1 week ago