Snick’s Board Shop is contemplating several alternative means of financing their acquisition of $350,000 in new equipment in year 1. One option is to borrow $300,000 from a local bank. The bank has asked them to produce a 3-year cash budget broken down by year (Year 1, 2, and 3). Sales in the prior year were $300,000 and are expected to increase 3 percent each year. Year 1 beginning cash was $97,450 and beginning inventory was $30,000. Purchases are based on an expected cost of sales of 40 percent and a required ending inventory of 25 percent of next year’s sales. Prior year expenses included advertising expense of $2,500, depreciation expense of $1,000, wages expense of $46,000, supplies expense of $450, and utilities expense of $1,600. All expenses except depreciation are paid in the year in which they are incurred and are expected to increase 8 percent each year. Interest expense is expected to remain constant at $15,000 each year for years 1–3. Collections in the year of sale are expected to be 90 percent, with the remaining 10 percent collected in the next year. Payments in the year of purchase are expected to be 95 percent, with the remaining 5 percent paid in the next year. Proceeds from the $300,000 loan are expected in year 1, and $350,000 of equipment will be purchased during year 1. In subsequent years equipment purchases are expected to be $1,000 each year. Proceeds from projected equipment sales each year are expected to amount to $200. Annual payments of $110,000 on the loan also begin in year 1.
Using the ch6-06 file to start your work, create a cash budget (as you did in the chapter) based on the assumptions just provided. Use Excel’s grouping feature to group operating cash receipts, operating cash payment, cash from (to) operating activities, cash from (to) investing activities, and cash from (to) financing activities. Define names as appropriate. Save your file as ch6-06_student_name (replacing student_name with your name).
a. Print the newly completed worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer. Print cash budget and assumptions.
b. Collapse rows to level 2. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer. Print cash budget with no assumptions.
c. Expand to view all rows and then use what-if analysis to calculate end-of-year cash if the sales growth each year were 7 percent. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer. Print cash budget and assumptions.
d. Undo the what-if analysis performed in part c. Use goal seek to determine what annual sales growth would be needed to produce an ending cash balance of $50,000 in year 3. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer. Print cash budget and assumptions.