Problem #1 (Cash Budget)

Pratt Company expects to have a cash balance of $52,000 on January 1, 2020. Here is the monthly budget data for the first two months of 2020.

1. Collections from customers: January, $ 75,000; February, $149,000.

2. Payments to suppliers: January, $42,000; February, $79,000.

3. Wages: January, $35,000; February, $42,000. Wages are paid in the month they are incurred.

4. Administrative expenses: January, $27,000, February, $31,000. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.

5. Selling expenses: January, $17,000, February, $21,000. These costs are exclusive of depreciation. They are paid as incurred.

6. Sales of short-term investments in January are expected to realize $14,000 in cash. Pratt has a line of credit at a local bank that enables it to borrow up to $30,000. The company wants to maintain a minimum monthly cash balance of $25,000.

Required:

provide a cash budget for January and February.

Problem #2 - (Capital Budgeting)

The McMahon Depot Co. is currently considering the purchase of a new machine that would increase the speed of manufacturing electronic equipment and save money. The net cost of the new machine is $ 70,000. The cash flows have the following projections:

YearAmount

1$ 24,000

231,000

341,000

422,000

513,000

If the cost of capital is 10 percent, find the following:

A. Payback Period.

B. Net Present Value

C. Internal Rate of Return

D. Profitability Index.