Buenos Aires-La Paz (“BALP”) is a Canadian-controlled private corporation headquartered in Whitehorse, Yukon. The company operates in the Yukon as well as all ten provinces, with focus regions for the business being Duncan, British Columbia; Lloydminster, Saskatchewan; Thunder Bay, Ontario; and Antigonish, Nova Scotia. In terms of Canadian market share, BALP is the largest manufacturer and installer of high-quality automobile antitheft devices. BALP’s anti-theft devices are installed in 1,000,000 vehicles across the country. The company’s antitheft devices are passive, meaning that the device automatically arms a vehicle when it is turned off, the ignition key is removed, or a door is shut; in other words, no action is required to engage security services for a car. For the upcoming year, BALP’s target is to install its anti-theft devices in 29,500 new vehicles. BALP was founded by Kathleen Ford and Doug Wynne in 1992. While Kathleen serves as BALP’s CEO, Doug is the company’s CFO. Since its humble inception, BALP has grown by leaps and bounds in the last 15 years. Kathleen and Doug argue over almost everything. This has led to low morale at the BALP headquarters, with exceptionally high turnover amongst management-level employees (the individual who interface the most with Kathleen and Doug). Your team, a group of CPAs from a consulting firm in Whitehorse called Elston LLP, has been called by Kathleen and Doug to assist with forecasting BALP’s cash needs. Today is November 14, 2018, and BALP’s fiscal year-end is December 31st . “I am particularly worried about the company’s cashflow,” says Kathleen. “When performing budgeting procedures in the last several years, Doug insisted on taking the prior year budget and simply adding Statistics Canada’s estimated inflation rate as well as an estimated growth in anti-theft device sales. I am suspicious that this budgeting methodology was a key factor in BALP not being able to fund payroll costs for multiple pay cycles this past year. This led to the company taking out emergency loans from our bank. Our relationship with the bank is strained, to say the least.” “As a result,” starts Doug, “the company is limited in being able to access cash in short time horizons. This is especially unfortunate, as we see next year as a clean slate for us to grow BALP to heights never witnessed before. To do this, we want to spend $4,000,000 in the first quarter of 2019. I think we will have about $900,000 cash onhand to pay for these purchases, so we only need borrow about $3,100,000.” “One thing I want to do is make sure that we repair our relationship with the bank,” states Kathleen. “That is pivotal because who knows when we will need to access more cash in the future. Who knows when another opportunity might come up for us to expand.” “With respect to sales,” says Rob, “here is our Sales Information (Appendix A). This table breaks down the prices we charge for our three services. Cash is accepted for revenues, with 70% of revenues received in the quarter that the work was completed, 3% classified as unreceivable, and the rest is obtained in the quarter subsequent to the one where revenues are recorded.” “Speaking of revenues,” says Kathleen, “this table (Appendix B) breaks down forecasted operations for this quarter and the next 5 quarters.” “As far as labour goes,” continues Doug, “anti-theft device installations are complex. Two team members are assigned to each installation: a senior anti-theft device specialist and a junior anti-theft device specialist. The senior anti-theft device specialist earns $38 per hour, while the junior anti-theft device specialist earns $10 less per hour. We assume it requires about 150 hours per month on average. A standard work week at BALP is 37.5 hours.” Kathleen interjects, “One team is needed for every 315 anti-theft device installations of anti-theft repairs that must be done. All of the required hiring is done at the beginning of the quarter; that is, we never have any labour shortages. Our human resources department is a big source of pride for us at BALP.” “We didn’t mention this before,” says Doug, “but we have one anti-theft device monitoring centre that does all of the monitoring for Canada. It is also located here in Whitehorse. For every 5,000 monitoring clients, one fulltime monitoring centre employee is hired. Our anti-theft device monitoring centre employees earn $18 per hour.” “Exactly,” exclaims Kathleen. “As you know, our 5 main regions of commercial activity are Whitehorse, Duncan, Lloydminster, Thunder Bay, and Antigonish. Four managers and 2 administrative employees are needed for each of these regions. Managers earn $50,000 each year, while administrative employees earn $23,000 each year as they are part-time employees. All employees, regardless of whether they are full-time or part-time, are eligible for BALP benefits. These benefits, which include provincial, territorial and federal mandatory payroll benefits, add an additional 32% onto each employee’s salary costs.” Doug states, “We pay our employees cash. About 85% of payroll is paid in the same quarter in which it is due to the employees, and 15% is paid in the subsequent quarter. With respect to benefits, these are 100% paid to employees in the quarter in which it is earned. For all payroll-related analyses you provided to Kathleen and I, you don’t have to consider tax implications.” “On the expense side of things,” starts Kathleen, “we buy one full hardware system at $175 each whenever a new anti-theft device needs to be installed. One full system is ordered for every six repairs that needs to be done; we have found it more cost-effective to buy a whole system which will subsequently give us enough hardware to do six repairs than to buy miscellaneous parts for repairs as needed.” “That’s right,” continues Doug. “Sufficient amounts of hardware are purchased for us to have a cushion of 7% of the subsequent quarter’s new installations and 25% of the subsequent quarter’s repairs.” “Accounts payable for the hardware is going to be $675,000 by the end of 2018,” states Kathleen. “We pay 35% of each purchase’s billing amount in the quarter that the hardware is acquired, and the remaining 65% is paid for in the subsequent quarter.” “It might help to have a detailed breakdown of our estimated other expenditures broken down by future quarters (Appendix C),” says Doug. “Each of these figures are inclusive of selling expenses, administrative expenses, general expenses, and depreciation. I would estimate that 85% of these other expenditures are settled in the quarter that they are incurred in, and 15% is paid in the subsequent quarter. We always pay off our expenses.”

Appendix A (Sales Information)

Sales Item Revenue Value

Anti-Theft Monitoring Package $28 per month

New Anti-Theft Installations $415 per installation

Anti-Theft Repairs (2%) $110 on average

Appendix B (Forecasted Operations for Current and Future Quarters)

Q4 (2018) Q1 (2019) Q2 (2019) Q3 (2019) Q4 (2019) Total Q1 (2020)

Anti-Theft Monitoring 500,500 510,000 510,500 515,000 523,000 - 531,500

New Anti-Theft Installations 5,500 6,500 7,000 7,000 9,000 29,500 8,500

Anti-Theft Repairs (2%) 5,005 5,100 5,105 5,150 5,230 20,585 5,315

Appendix C (Estimated Other Expenditures, Per Quarter)

Quarter Expected Other Expenditures

Q4 (2018) $11,950,000

Q1 (2019) 12,150,000

Q2 (2019) 12,853,000

Q3 (2019) 13,459,000

Q4 (2019) 13,690,000