Scenario Your family business is expanding Based on your experience and in depth knowledge of the market, you have estimated the following results for the first 2 years (8 quarters) of the project Expected revenues for the first two years are as follows In addition, sales for the 1 st quarter of Year 3 are projected at $370,000 Year 1 (000s) Year 2 (000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 10 20 40 70 110 160 220 290 General and administrative expenses (wages, taxes, office etc ) are estimated to be 15 of sales Sales salaries and commissions are estimated to be 12 of sales Accounts receivable at the beginning of this expansion are $0 Collection period 30 days Accounts payable at the beginning of the expansion are $0 The Company quarterly purchases from suppliers 40 of the next quarters forecasted sales Suppliers are paid on average in 45 days You will need to buy new equipment furniture in both Year 1 Q1 and Q3 for $25,000 ($50,000 total in Year 1) To help start the expansion you have secured an initial cash loan from the bank of $50,000 Interest on this loan is $1,500 per quarter The company will pay back the full $50,000 in the Year 2 Q4 Interest on any additional short term borrowing is expected to be 2 per quarter The company required return must be at least this each quarter The Company wishes to maintain a $50,000 minimum balance at all times to best manage its working capital and any unexpected commitments Question 2 Use the template in Appendix B to build a Short Term Financing Plan Appendix B Short Term Financing Plan Year 1 ('000s) Q2 Q3 Year 2 ('000s) Q2 Q3 Q1 94 Q1 24 Beginning cash balance Net cash flow Ending Cash Balance (before borrowing or repayment) Interest on exiting short term borrowing New required short term borrowing Short term borrowing repaid Ending Cash Balance (after borrowing or repayment) Minimum cash balance Cumulative surplus (deficit) Beginning short term debt Change in short term debt Ending short term debt

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Scenario Your family business is expanding. Based on your experience and in depth knowledge of the market, you have estimated the following results for the

Scenario

Your family business is expanding. Based on your experience and in depth knowledge of the market, you have estimated the following results for the first 2 years (8 quarters) of the project.

Expected revenues for the first two years are as follows.
- In addition, sales for the 1^st quarter of Year 3 are projected at $370,000.

*Year 1 (000s)*				*Year 2 (000s)*
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
10	20	40	70	110	160	220	290

General and administrative expenses (wages, taxes, office etc.) are estimated to be 15% of sales.

Sales salaries and commissions are estimated to be 12% of sales.

Accounts receivable at the beginning of this expansion are $0.
- Collection period = 30 days

Accounts payable at the beginning of the expansion are $0.
- The Company quarterly purchases from suppliers = 40% of the next quarters forecasted sales.
- Suppliers are paid on average in 45 days.

You will need to buy new equipment & furniture in both Year 1 Q1 and Q3 for $25,000 ($50,000 total in Year 1).

To help start the expansion you have secured an initial cash loan from the bank of $50,000. Interest on this loan is $1,500 per quarter. The company will pay back the full $50,000 in the Year 2 Q4.

Interest on any additional short-term borrowing is expected to be 2% per quarter. The company required return must be at least this each quarter.

The Company wishes to maintain a $50,000 minimum balance at all times to best manage its working capital and any unexpected commitments.

Question #2

Use the template in Appendix B to build a Short-Term Financing Plan.

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Appendix B - Short-Term Financing Plan Year 1 ('000s) Q2 Q3 Year 2 ('000s) Q2 Q3 Q1 94 Q1 24 Beginning cash balance Net cash flow Ending Cash Balance (before borrowing or repayment) Interest on exiting short-term borrowing New required short-term borrowing Short-term borrowing repaid Ending Cash Balance (after borrowing or repayment) Minimum cash balance Cumulative surplus (deficit) Beginning short-term debt Change in short-term debt Ending short-term debt