Question
Start with the partial model in the file attached. Marvel Pence, CEO of Marvel's Renovations, a custom building and repair company, is preparing documentation for
Start with the partial model in the file attached. Marvel Pence, CEO of Marvel's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts of 2020 and 2021:
Sales
Labor and Raw Materials
May, 2020
$75,000
$80,000
June, 2020
$115,000
$75,000
July, 2020
$145,000
$105,000
August, 2020
$125,000
$85,000
September, 2020
$120,000
$65,000
October, 2020
$95,000
$70,000
November, 2020
$75,000
$30,000
December, 2020
$55,000
$35,000
January, 2021
$45,000
N/A
Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 20%; collections during the month following the sale, 60%; collections the second month following the sale, 25%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table. General and administrative salaries will amount to approximately $25,000 a month; lease payments under long-term lease contracts will be $7,000 a month; depreciation charges will be $8,000 a month; miscellaneous expenses will be $5,000 a month; income tax payments of $30,000 will be due in both August and December; and a progress payment of $95,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $70,000, and a minimum cash balance of $30,000 will be maintained throughout the cash budget period.
Input Data
Collections during month of sale 20%
Collections during month after sale 60%
Collections during second month after sale 25%
Lease payments $7,000
Target cash balance $30,000
General and administrative salaries $25,000
Depreciation charges $8,000
Income tax payments (Sep & Dec) $30,000
Miscellaneous expenses $5,000
New office suite payment (Oct) $95,000
Cash on hand July 1 $70,000
Sales, labor, and RM adjustment factor 0%
Can you please explain step by step procedure for the 3 questions below
a.solve monthly cash budget for the last six months of the year.
May June July August September October November December January Original sales estimates $75,000 $115,000 $145,000 $125,000 $120,000 $95,000 $75,000 $55,000 $45,000 Original labor and raw mat. estimates $80,000 $75,000 $105,000 $85,000 $65,000 $70,000 $30,000 $35,000
Forecasted Sales
Sales (gross)
Collections
During month of sale
During 1st month after sale
During 2nd month after sale
Total collections
Purchases
Labor and raw materials
Payments for labor and raw materials
Payments
Payments for labor and raw materials
General and administrative salaries
Lease payments
Miscellaneous expenses
Income tax payments
Design studio payment
Total payments
Net Cash Flows
Cash on hand at start of forecast period
Net cash flow (NCF):Total collections - Total payments
Cumulative NCF:Prior month cumulative + this month's NCF
Cash Surplus (or Loan Requirement)
Target cash balance
Surplus cash or loan needed:Cum NCF - Target cash
Max. Loan =
b. Solve an estimate of the required financing (or excess funds)that is, the amount of money Marvel's Renovations will need to borrow (or will have available to invest)for each month during that period.
c. If its customers began to pay late, this would slow down collections and thus increase the required loan amount. Also, if sales dropped off, this would have an effect on the required loan amount. Perform a sensitivity analysis that shows the effects of these two factors on the maximum loan requirement.
Step by step procedure for the 3 questions.
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