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Question 2 Lion Apparel Lid is a relatively young company in the apparel business, selling clothing At the beginning of June, the company has an

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Question 2 Lion Apparel Lid is a relatively young company in the apparel business, selling clothing At the beginning of June, the company has an overdraft of $1 12,000. The table below show the income and expenses of the firm for the upcoming 6 months : June July August September October November EOOO EOOO EOOO Revenue 240 300 340 440 500 560 Sewing machines bought 312 360 390 320 300 320 Public Relations 30 36 40 50 60 60 Equipment Leave 20 0 Utility 0 60 0 0 0 0 Salary 32 37 36 36 40 Miscellaneous expenditure 40 48 48 52 52 52 The firm intends to buy a new delivery vehicle in August for 248,000. The company have to pay taxes amounting to $60,000 by September 1". The firm's clothing are sold to individual customers by cash. However, the firm sell to clothing shops on a 4 months trade credit. Individual customers made up 80% of sales. Accounts receivable in June amounts to $220,000. 25% of this amount is from sales in the month of May, 25% from the month of April, 25% from the month of March and 25% from the month of February. The firm's sewing machines are bought through accounts payable of 3 months. This occur in the beginning of June. The balance of the accounts payable in the beginning of June is $280,000. Depreciation of sewing machines amounts to $1,000 per month. Miscellaneous expenses incorporate f16,000 per month for depreciation. The sales price is expected to increase by 2%% per month June onwards. Salary is expected to increase by 1% per month June onwards. Required: (a) Graham who is the Chief Financial Officer (CFO) of Lion Apparel Ltd argued that the cash flow forecast can be a complicated financial process and there are no benefits attached to it. Do you agree or disagree with Graham's argument ? Justify your stance with proper explanations. (3 marke) (b) One day, Lion Apparel Lid encounter a surge in its sales and other business activities. Evaluate a potential problem that the firm is very likely to encounter under this scenario. In your discussion, explain the risks that the firm will encounter with respect to this problem. (4 marks) (c) Create a cash flow forecast for Lion Apparel Ltd from 1"June to 30" November. Show the cash balance at the end of each month. (12 marks)

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