The Wine Depot is contemplating several alternative means of financing their annual acquisition of $70,000 in equipment. One option is to borrow $300,000 from a local bank for 5 years at 11 percent per annum. The bank has asked them to produce a 4-year cash budget broken down by year (Year 1 through Year 4). Sales of $650,000 are expected in year 1, with sales increasing each year thereafter by 10 percent. Sales in the previous year were $600,000. Purchases are based on an expected cost of sales of 30 percent and a required ending inventory of 10 percent of next year’s sales. Purchases in the previous year were $200,000, and beginning inventory was $32,000. Annual expenses include advertising expense of $10,000, marketing expense of $6,000, depreciation expense of $8,000, interest expense of $35,000, salaries expense of $250,000, wages expense of $65,000, supplies expense of $7,500, and utilities expense of $10,000. All expenses except depreciation are paid in the year in which they are incurred and are expected to increase 5 percent each year. Collections in the year of sale are expected to be 92 percent, with the remaining 8 percent collected in the next year. Payments in the year of purchase are expected to be 93 percent, with the remaining 7 percent paid in the next year. Proceeds from the $300,000 loan are expected in year 1 and $75,000 of facilities will be purchased each year. Proceeds from expected equipment sales each year are expected to amount to $10,000. Annual payments of $81,171 on the loan also begin in year 1. The beginning cash balance in year 1 was $20,000.
Using the ch6-05 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. Save your file as ch6-05_student_name (replacing student_name with your name). Define names as appropriate.
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.
b. Collapse rows to level 2; then print the 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 only, no assumptions.
c. Collapse rows to level 2, and then use what-if analysis to calculate end-of-year cash if the sales growth each year were 4 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 only, no assumptions.
d. Undo the what-if analysis performed in part d. Collapse rows to level 2, and then use goal seek to determine what annual sales growth would be needed to produce an ending cash balance of $100,000 in year 4. 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.