Your family business is expanding. Based on your experience and in depth knowledge of the market, you have estimated the following results for the first 2 years (8 quarters) of the project.

1. Expected revenues for the first two years are as follows. o In addition, sales for the 1st quarter of Year 3 are projected at $370,000.
2. Year 1 ('000s) Q1 = 10 Q2= 20 Q3= 40 Q4= 70
3. Year 2 ('000s) Q1 = 110 Q2 = 160 Q3 = 220 Q4 = 290
4. General and administrative expenses (wages, taxes, office etc.) are estimated to be 15% of sales. Sales salaries and commissions are estimated to be 12% of sales.
5. Accounts receivable at the beginning of this expansion are $0. o Collection period = 30 days
6. Accounts payable at the beginning of the expansion are $0. o The Company quarterly purchases from suppliers = 40% of the next quarter's forecasted sales. o Suppliers are paid on average in 45 days.
7. You will need to buy new equipment & furniture in both Year 1 - Q1 and Q3 for $25,000 ($50,000 total in Year 1).
8. To help start the expansion you have secured an initial cash loan from the bank of $50,000. Interest on this loan is $1,500 per quarter. The company will pay back the full $50,000 in the Year 2 - Q4.
9. Interest on any additional short-term borrowing is expected to be 2% per quarter. The company required return must be at least this each quarter.

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

Appendix A - Cash Budget Year 1 ('000s) Year 2 ('000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cash Collections Beginning A/R Sales Cash (A/R) Collections Ending A/R Cash Disbursements Beginning A/P Purchases Paid A/P Ending A/P Total Cash Outflows Paid A/P General & admin. Expenses Sales salaries & commissions Capital expenditures Loan Repayment Loan Interest Total cash disbursements Net Cash Flows Beginning cash balance Total cash (A/R) collections Total cash disbursements Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)Appendix B - Short-Term Financing Plan Year 1 ('000s) Year 2 ('000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Beginning cash balance Net cash flow Ending Cash Balance (before borrowing or repayment) Interest on exiting short-term borrowing New required short-term borrowing Short-term borrowing repaid Ending Cash Balance (after borrowing or repayment) Minimum cash balance Cumulative surplus (deficit) Beginning short-term debt Change in short-term debt Ending short-term debt