MULTIPLE CHOICE:

1) In making sound capital budgeting decisions, the principal focus is on:

A. After-tax cash flows only.

B. Timing of the cash flows only.

C. After-tax cash flows and the timing of these cash flows.

D. Accounting-based measures of revenues and expenses.

E. Nonfinancial performance indicators of various projects under consideration.

2) Which of the following budgets must be completed before preparing a cash budget?

A. Cash receipts budget.

B. Rolling budget.

C. Cash financing budget.

D. Pro forma balance sheet.

E. Pro forma income statement.

QUALITATIVE ANALYSIS: It is advisable to document all your work and calculations as applicable.

3) Glenda Inc. has a policy of not accepting any investment proposal that requires more than three years to payback. The company is considering the purchase of new drafting equipment for $718,000. The equipment has an estimated useful life of seven years. Glenda will use straight-line depreciation for this asset, with no salvage value. Glenda's income tax rate is approximately 25%.

Required: Determine the required before-tax savings for the drafting equipment to meet the company's payback requirement.

4) Transcript Company is preparing a cash budget for June. The company has $145,000 cash at the beginning of the month and anticipates having total sales of $1,222,000, consisting of 25% cash sales and 75% credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 150 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. Other cash disbursements are $66,000 per month, 4 percent of the total sales and the cash purchase of a new tractor for $125,000. Also, a $545,000 note will be due this month for equipment purchased last year. Transcript Company has an agreement with its bank to maintain a cash balance of $125,000.

Required: What is the cash balance and what amount, if any, must the company borrow during June?