Question 2 [35]

Your friend Lilly started Elderflower Boutique, a company that sells perfumes rejected by the retail stores because their packaging is damaged. These perfumes are less expensive and, therefore, in high demand. Lilly borrowed R100 000 from her father which she must repay after 3 months. She asked you to assist her with the preparation of a cash flow forecast from April 2022 to June 2022 to determine if she will be able to do so.

She provided you with the following information:

Sales are expected to be R120 000 in April. An increase of 18% is expected for May and the sales for June are expected to increase by R80 000 compared with the sales of May.

Cash sales are expected to be 20%.

Lilly has a credit policy in place allowing her customers to pay 60% of their debt in the first month after their purchase, 30% in the second month following the purchase and the remaining balance in the third month.

Lilly expects the purchases to be 40% of the total sales, of which 10% will be paid in cash. Lilly is allowed to pay her supplier 50% in the month following the purchase and the remaining balance in the second month after the purchase.

You also obtained the following information:

Monthly rent will be R20 000.

Salaries and wages will be R15 000 in April and May, with a 10% increase from June.

Depreciation on her motor vehicle is R5 000 per month.

The company will receive a dividend of R10 000 in June from an investment.

Lilly must repay the R100 000 borrowed from her father at the end of June.

Required:

Advise Lilly if she will be able to repay her father at the end of June.