Question:

Cash Receipts

25% of sales are in cash and collected in the month the sale is made and 75% are on credit and collected in the month after the sale. December 2017 sales were $3 million. The sales forecast for 2018 is as follows:

January 2,800,000

February 2,500,000

March 3,200,000

April 3,400,000

May 3,600,000

June 3,600,000

July 3,800,000

August 4,000,000

September 3,600,000

October 3,400,000

November 2,800,000

December 2,600,000

Cash Disbursements

The disbursements for this firm are as follows:

• Payments for raw materials are calculated based on 50% of current month sales.
• Operating expenses are $700,000 per month.
• Corporate overhead is $100,000 per month.
• $1.5 million semi-annual bond interest payments are due in May and November.
• $1.8 million in new equipment will arrive in May and must be paid for in July.
• $1.2 million in new equipment will arrive in September and must be paid for in October.
• A $1.4 million insurance premium is due in February.
• $900,000 quarterly real estate tax payments are due in February, May, August, and November

Cash/Credit Line Information

The company must have a minimum cash balance of $200,000 at month-end and the cash balance at the end of December 2017 is $750,000. The company maintains a $1 million credit line for short-term liquidity purposes, none of which is outstanding at the end of December 2017. Do NOT include interest expense on the credit line in the calculations.

Required:

Dec Jan Feb Mar Apr May Jun Jul

Total Sales 3,000,000 2,800,000 2,500,000 3,200,000 3,400,000 3,600,000 3,600,000 3,800,000

Aug Sep Oct Nov Dec

4,000,000 3,600,000 3,400,000 2,800,000 2,600,000

Cash Receipts:

Month of sale (25%)

First month (75%)

Total collections

Cash Disbursements:

Purchases (50%)

Operating Expenses

Corporate Overhead

Bond Interest Payment

Equipment Purchase

Insurance

Real Estate Taxes

Total Disbursements

Net Monthly Change

Beginning Cash Balance

Borrowings (Repayments)

Ending Cash Balance 750000 (Jan)

Cumulative Borrowing