LuluLime, a local fruit retailer is experiencing very strong sales growth across its 3-store network, and management has decided to add a 4th location. The company currently has no debt, but management realizes that due to seasonal cash flow fluctuations, the set-up of a new store will require a short-term bank loan until the store is fully operation.

The finance manager, Jonah, compiled the following financial information for the next 3 months to show its bank manager.

Sales Forecast:

	Actual Sales	Forecast Sales
November	320,000
December	340,000
January		400,000
February		440,000
March		460,000
April		450,000

Cash collection:

• 40% are for cash and the remaining 60% are on credit

• Of the credit sales, 30% of customers pay in the month after the sale

• 70% are paid in the second month after the sale

Cash payments Forecast:

	January	February	March
Payments for Purchases	120,000	132,000	138,000
Labour Expense	180,000	198,000	207,000
Selling & Admin. Expense	24,000	26,400	27,600
Overhead	32,000	32,000	32,000
Taxes	8,600
Dividends			5,000
TOTAL Cash Payments	364,600	388,400	409,600

Cash Receipts Forecast:

	January	February	March
Sales	400,000	440,000	460,000
Credit Sales	240,000	264,000	276,000
Cash Sales	160,000	176,000	184,000
Collection in the month after credit sales	61,200	72,000	79,200
Collection 2 months after credit sales	134,400	142,800	168,000
TOTAL cash receipts	355,600	390,800	431,200

Other financial highlights:

Gross Margins	70% of sales
Labour expense	45% of sales
Selling & Administrative expense	6% of sales
Fixed overhead	$32,000
Amortization	$10,600
Income taxes to be paid in January	$8,600
Dividends to be paid in March	$5,000
Cash at the beginning of January	$92,000
Minimum desired cash balance	$87,000

REQUIRED: Use the template provided for your response

• Prepare a schedule of monthly cash budget with borrowings and repayments for January, February and March.

QUESTION:

What is the maximum draw down in the credit facility that LuluLime would have to make based on the forecasts? When will the loan facility be fully paid down?

Monthly Cash Budget:

	January	February	March
Total cash receipts
Total cash payments
NET Cash Flow
Beginning cash balance
Cumulative cash balance
Monthly loan or (repayment)
Cumulative loan balance
ENDING cash balance