The president feels very strongly that Mountain Sports should expand operations to a second location. She has even found a prime location in Canmore, Alberta, One of the great things about Canmore is its proximity to the mountains, ski-areas, hiking, biking and only about 10 minutes away from this beautiful, vibrant and internationally known Banff tourist town. Research indicates that the Canmore market is well suited to both cross-country skis and mountain bikes and that competition is fairly limited. Performance Measurements: ROI, Residual (RI) Management has provided the following income statement to the bank manager the expected net income in the next year. $ 1,425,000 $ 975,000 125.000 1,100,000 325,000 $ Sales Variable Costs: Cost of Goods Sold Sales Commissions Total Variable Costs Contribution Margin Fixed Costs: Lease Salaries Advertising Property Taxes Utilities Total Fixed Costs Operating Income 93,750 125,000 25,000 8,750 10,000 262,500 62,500 $ Assume that the five owners of Mountain Sports Ltd. decide to collectively invest $55,000 of personal funds into the Canmore expansion. Mountain Sports will require an open line of credit to fund the remaining investment in assets of $198,000 ($253,000 investment in operating assets less $55,000 owner investment) and to cover cash deficiencies throughout the year. The maximum line of credit available is $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line credit within a year. Prepare a cash budget for the first year of operation of Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. Assume sales by quarter are 15%, 5%, 25%, and 55% of annual sales. Assume that 55% of all sales are cash. The rest are credit sales (accounts receivables) which will be collected in the following quarter. Assume there are no uncollectible accounts. Assume the following inventory purchases are all paid in the quarter of the purchase. You can assume the COGS number already accounts for these inventory purchases. No further action is required for COGS in the cash budget. 01 50,000 $ 02 $40,000 03 80,000 Inventory Purchases $ 04 150,000 $ Assume expenses are paid as follows (use income statement provided in Question 3): Expenses paid on a monthly basis: Sales Commissions, Lease, Salaries, Advertising, and Utilities. Expenses paid on a quarterly basis: Property Taxes The owners also purchased equipment for the new venture valued at $80,000. The equipment will be paid for in cash in the first quarter. Assume that the beginning cash balance is $55,000. This is the amount the owners are capable of investing in this new venture. A minimum of $25,000 cash balance is needed at the end of each quarter. Assume the company will borrow against the line of credit as required, and pay off any amount owing on the line of credit when funds are available. Year Otr. 4 Percent of Sales Estimated Sales $213.750 100 $71.250 $356250 $7637631425.000 s 55,000 117,563 96,187 39,188 32,062 25,000 195,938 160,312 431,063 352,687 Cash Balance, Beginning Cash Sales-Collections Credit Sales Collections Total Cash Availabl Less: Cash Disbursements Initial Investment in Ansets 783,750 641.250 1,127,313 $ $198.000 Total Disbursement S 424.875 S 246,875 $ 252,313 Cash Excess (Deficiency) Financing: Additional Borrow/Repayments) Original Line of Credit Borrow Repayment Net Financing - 29.6875 198.000 1 $ 51,125 Cash Balance, Ending $ 25,000 $ 141,812.5