Question #1 - (10 marks) Based on the information below build a Cash Budget for J & J Sports Inc.'s potential expansion. Expected revenues for the first two years are as follows. Sales for the 1* quarter of Year 3 are projected at $650,000. Year 1 '000s) Q2 90.00 160.00 21 50.00 23 Q1 94 200.00 Year 2000s) Q2 93 350.00 440.00 04 550.00 280.00 General and administrative expenses (wages, taxes, office etc.) are estimated to be $10,000 in Year 1 - Q1 and 20% of sales thereafter. Sales salaries and commissions are estimated to be 8% of sales. Accounts receivable at the beginning of this expansion are $0. o Collection period = 30 days Accounts payable at the beginning of the expansion are $0. The company quarterly purchases from suppliers = 50% of the next quarter's forecasted sales. Suppliers are paid on average in 60 days. The company expects capital outlays in both Year 1 - Q1 of $40,000 and Year 2-Q1 of $20,000 each. The expansion will start with an initial cash loan from the parent company of $100,000. Interest on this loan is $2,500 per quarter. The company will pay back the full $100,000 in the Year 2-04. Interest on any additional short-term borrowing is expected to be 5% per quarter. The Company wishes to maintain a $100,000 minimum balance at all times to best manage its working capital and any unexpected commitments. Question #2 - (10 marks) From above, does the company require any short-term financing? Explain. (50 - 100 words) a. If so, use the template in Appendix A to build a Short-Term Financing Plan. Question #3 - (20 marks) Based on your analysis in Assignments 1-4 create an Executive Summary for J & J Sports Inc.'s CEO on whether it should move forward with the expansion. To simplify things use Appendix B as a template. Note: For each section, DO NOT simply cut and paste your earlier recommendations. Instead, summarize each to ensure this is limited to 1 page. If it is > 1 page it will not be marked...CEO's like things short and straight to the point! Appendix A -Cash Budget Year 1 ('000s) Q2 Q3 Year 2 ('000) Q2 Q3 Q1 Q4 Q1 Q4 Cash Collections Beginning A/R Sales Cash Collections Ending A/R Cash Disbursements Beginning A/P Purchases Paid A/P Ending A/P Total Cash Outflow Paid A/P General & admin. Expenses Sales salaries & commissions Capital expenditures Loan Repayment Interest Expense (existing) Total cash disbursements Year 1 ('000s) 02 Q3 Year 2 ('000) Q2 93 Q1 Q4 91 04 Beginning cash balance Total cash collections Total cash disbursements Net cash flow Ending cash balance Minimum cash balance Cumulative surplus (deficit) Short-Term Financing Plan Year 1 ('000) Q2 Q3 Year 2 ('000) Q2 03 Q1 04 Q1 04 Beginning cash balance Net cash flow Ending Cash Balance (before borrowing) Interest on existing short-term borrowing New short-term borrowing Short-term borrowing repaid Ending cash balance (after borrowing) Minimum cash balance Cumulative surplus (deficit) Beginning short-term debt Change in short-term debt Ending short-term debt
