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 1 (20 marks) Based on the information above build a Cash Budget for the expansion Use Appendix A Appendix A Cash Budget Year 1 ('000) Q2 Year 2 ('000) Q2 Q3 Q1 Q3 04 Q1 Q4 Cash Collections Beginning A R Sales Cash (A R) Collections Ending A R Cash Disbursements Beginning A P Purchases Paid A P Ending A P Total Cash Outflows Paid A P General admin Expenses Sales salaries commissions Capital expenditures Loan Repayment Loan Interest Total cash disbursements Net Cash Flows Beginning cash balance Total cash (A R) collections Total cash disbursements Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)

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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 first

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 #1 (20 marks)

Based on the information above build a Cash Budget for the expansion. Use Appendix A

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Appendix A - Cash Budget Year 1 ('000) Q2 Year 2 ('000) Q2 Q3 Q1 Q3 04 Q1 Q4 Cash Collections Beginning A/R Sales Cash (A/R) Collections Ending A/R Cash Disbursements Beginning A/P Purchases Paid A/P Ending A/P Total Cash Outflows Paid A/P General & admin. Expenses Sales salaries & commissions Capital expenditures Loan Repayment Loan Interest Total cash disbursements Net Cash Flows Beginning cash balance Total cash (A/R) collections Total cash disbursements Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)