Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Sharpe Corporation's projected sales for the first eight months of 2011 are as follows: January $90, 000 May $300, 000 February 120.000 June 270.000

image text in transcribed
The Sharpe Corporation's projected sales for the first eight months of 2011 are as follows: January $90, 000 May $300, 000 February 120.000 June 270.000 March 135,000 July 225,000 April 240.000 August 150.000 Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following the sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $220, 000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition. Sharpe pays $10, 000 per month for rent and $20, 000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company's cash balance at December 31, 2010, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (i.e., .12 Times 1/12 Times $60,500) owed for April being paid at the beginning of May. Prepare a cash budget for Sharpe covering the first seven months of 2011. Sharpe has $200, 000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance For Development

Authors: Barbara Stallings

1st Edition

0815780850, 978-0815780854

More Books

Students also viewed these Finance questions