Using the above information complete Pro Forma Income Statement.
Using the following projections complete template in Appendix-B, build a Cash Budget for the expansion. Based on your cash budget and help to analyse Appendix C to make a Short-Term Financing Plan.
****Need to analyse Appendices A & B and help to explain the following statement.
"Managers should use cash flows instead of net incomes when making business/project decisions".
***Does this look like a viable expansion?
I am new to accounts I need help with this just for home practice question so that with this help I can prepare for my upcoming tests
It would be really helpful if you can add some comments on formula's used so that I can use same for my next practice question
As per my understanding given an initial loan of $350k. Minimum cash balance to maintain $175k.
Question Scenario Expansion Projections BikesAreBetter Inc. expects the following during the first two years of expansion into the new line of business. Note: These projections are specific to the launch and growth of the new electric bike divisionand are not part of the past financials. . Expected revenues for the first two years are as follows. o Sales for the 1* quarter of Year 3 are projected at $1,150,000 Year 1 ('000s) Year 2 ('000s Q1 Q2 93 Q4 Q1 Q3 Q4 20.00 60.00 150.00 250.00 375.00 550.00 750.00 975.00 . Accounts receivable at the beginning of this expansion are $0 o Collection period = 30 days Accounts payable at the beginning of the expansion are $0 o The Company quarterly purchases from suppliers =30% of the next quarter's forecasted sales. o Suppliers are paid on average in 60days. . General and administrative expenses (salaries, insurance, IT, utilities etc.) are estimated to be $7,500 in the 1st quarter of Year 1 and15% of sales thereafter. . Sales salaries and commissionsand advertising are estimated to be 12.5% of sales. . The company expects capital outlaysin both Year 1 - Q1 of $175,000 and Year 1- Q3 of $175,000. . The expansion will start with an initial cash loan from the parent company of $350,000. Interest on this loan is $7,000 per quarter. The $350,000 will be paid back during Year 2 - Q4. . Interest on any additional short-term borrowing is expected to be 3% per quarter. . The Company wishes to maintain a $175,000 minimum balance at all times to best manage its working capital and any unexpected commitments. Practice --... Using the above information complete Pro Forma Income Statement. Using the following projections complete template in Appendix-B, build a Cash Budget for the expansion. Based on your cash budget complete Appendix C to create a Short-Term Financing Plan. ***Based on your completed Appendices A & B explain the following statement. "Managers should use cash flows instead of net incomes when making business/project decisions". **Does this look like a viable expansion? Appendix A - Bikes Are Better Inc. - Pro Forma Income Statement Year 1 ('000s Year 2 ('000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Revenues Q4 COGS Gross Profit Operating Expenses General & Admin Sales Salaries, Commissions& Advertising Total Operating Expense EBIT Interest Earnings Before Tax Taxes (33%) Net Income Appendix B - Cash Budget Year 1 ('000s) Year 2 ('000s) Q1 Q2 Q3 Q4 Q1 Cash Collections Q2 Q3 Q4 Beginning A/R Sales Cash Collections (from A/R) Ending A/R Cash Disbursements Beginning A/P Purchases Paid A/P Ending A/P Total Cash Outflow Paid A/P General & Admin. Expenses Sales Salaries, Commissions& Advert. Capital Expenditures Loan Repayment InterestExpense Total Cash Disbursements Q1 Year 1 ('000s) Q2 Q3 Year 2 ('000s) Beginning Cash Balance Q1 Q2 Q3 Q4 Total Cash Collections Total Cash Disbursements Net Cash Inflow Ending Cash Balance Minimum Cash Balance Cumulative Surplus (Deficit) Appendix C - Short-Term Financing Plan Year 1 ('000s) Year 2 ('000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Beginning Cash Balance Net Cash Inflow Ending Cash Balance (before borrowing) Interest on existing Short-Term Borrowing New Short-Term Borrowing Short-Term Borrowing Repaid Ending Cash Balance (after borrowing) Minimum Cash Balance Cumulative Surplus (deficit) Beginning Short-Term Debt Change in Short-Term Debt Ending Short-Term Debt
