You went to college with a student named Hank Skully. You remember Hank as a poor student that would always cheat and plagerize on his assignments. Now that Hank is working he can no longer use Chegg or Course Hero and regrets his conduct during his college days. He tells you that he has been terminated and wants you to help him find a new job.

Upon hearing of Hank's situation you decide to capitalize on this opportunity by applying for Hank's job. You send your resume to the company. You were always a good student who conducted themselves in an ethical manner.

Trevor Henry is the Senior director at the company and decides to give you an opportunity to prove yourself. He has asked you to prepare a cash budget based on the following assumptions. Once you complete the cash budget, Trevor also wants you to explain in a brief paragraph (200 400 words) why a pro forma cash budget is essential to the success of a firm. Provide arguments to support this.

Expected revenues for the first two years are as follows.

Year 1 (000s)				Year 2 (000s)
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
50	90	160	200	280	350	440	550

Sales for the 1st quarter of Year 3 are projected at $650,000.

Other important information

General and administrative expenses (wages, taxes, office etc.) are estimated to be $10,000 in Year 1 - Q1 and 20% of sales thereafter.

Sales salaries and commissions are estimated to be 8% of sales.

Accounts receivable at the beginning of this expansion are $0. - Collection period = 30 days

Accounts payable at the beginning of the expansion are $0. - The Company quarterly purchases from suppliers = 50% of the next quarters forecasted sales. - Suppliers are paid on average in 60 days.

The company expects capital outlays in both Year 1 Q1 of $40,000 and Year 2- Q1 of $20,000 each.

The expansion will start with an initial cash loan from the parent company of $100,000. Interest on this loan is $2,500 per quarter. The company will pay back the full $100,000 in the Year 2 Q4.

Interest on any additional short-term borrowing is expected to be 5% per quarter.

The Company wishes to maintain a $50,000 minimum balance at all times to best manage its working capital and any unexpected commitments.

The company tax rate is 35%.

Prepare the cashbudget for the firm and explain why pro forma cash budgets are essential to the success of a firm.