(Statement of Cash Flows) The Wichita Grain Corporation’s controller prepared the following Statements of Cash Flows (in thousands of dollars) for the past 3 years and the budget for next year (1998):

After preparation of the above budgeted SCF for 1998, Monique Jones, the company president, asked you to recompile it based on a separate set of facts. She is evaluating a proposal to purchase a local area network (LAN) computer system for the company at a total cost of $50,000. The proposal has been deemed to provide a satisfactory rate of return. However, she does not want to issue additional stock and she would prefer not to borrow any more money to finance the project.
Projecting the market value of the accumulated investments for the previous 3 years ($3,600 and $12,600) reveals an estimate that these investments could be liquidated for $18,400. Ms. Jones said the investments scheduled for 1998 did not need to be purchased and that dividends could be reduced to 40 percent of the budgeted amount. These are the only changes that can be made to the original forecast.

a. Evaluate the cash trends for the company over the past 3 years.

b. Giving effect to the changes above, prepare a revised 1998 budgeted State¬ ment of Cash Flows and present the original and revised in a comparative format.

c. Based on the revised budgeted SCF, can the LAN computer system be pur¬ chased if Ms. Jones desires an increase in cash of at least $1,000?

d. Comment on the usefulness of the report prepared in part b to Monique Jones.

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BUDGET 1995 NET CASH FLOWS FROM OPERATING ACTIVITIES Net income Add net reconciling items Total 1996 1997 1998 $ 41,700 $ 39,200 $ 43,700 2,200 $ 43,900 $ 43,500 4,300 3,000 $ 46,700 $ 45,100 4,000 $ 49,100 NET CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment Sale (purchase) of investments Other investing inflows Total $(18,700) $(12,200) $(4,600) 8,700 $ (3,600) (12,600) (15,800) 1,200 800 600 $ (8,800) $ (2,800) $(24,200) 2,400 $(18,000)