The management committee of Grant Electronics Inc. was studying a report prepared by its economics department about the expansion of a plant to increase their production capacity. The CEO, Jim Smart, indicated that the expansion program would cost approximately $5.6 million in non-current assets (property, plant, and equipment) and that he was hoping that at least half of the funds would be financed through internally generated cash. The investment would take place during the early part of 2013.

He therefore asked his management team to prepare a summary report about how much cash they expected to generate within their respective operations during the remaining six months of 2012. He wanted to review their plans in 30 days.

At the meeting, Jim asked each team member to make a brief statement of much cash he or she would be able to generate before the end of 2012. The vice-president of marketing said that despite the economic slowdown, the company would be able to increase its revenue by 3.2% over 2011. She also added that the introduction of two new product lines and better after-sales service would help the company increase its market share a little. She stated that the industry would grow by only 1.5%. She believed, based on her forecasts, the company would reach $102.0 million in revenue in 2012.

The vice-president of production gave a breakdown of the plant and equipment that would be included in the capital budget proposal. He emphasized that the modernization program would save money in manufacturing, which was included in a 4.1% return on revenue goal for the year 2012.

The chief financial officer said that the projected financial statements included $1.3 million for depreciation/amortization and that she had asked the manager of the trade receivables department to update her about the receivables that would be shown in the statement of financial position by the end of the year. She also mentioned that although there was a three-day improvement in the average collection period, receivables outstanding would show a $700,000 increase.

The vice-president of production indicated that all managers responsible for the production and manufacturing sectors of the company had looked at every possibility to improve the inventory turnover. Despite that, the levels of inventories would increase by $800,000.

The treasurer was asked how much cash could be raised. He replied that $400,000 could be raised from the bank to finance the increased levels of trade receivables and inventories and that he had approached several long-term lenders who were willing to finance part of the capital expenditure project for $1.2 million. He also pointed out that Grant Electronics would continue to pay its common shareholders their annual dividends of $600,000 but that he would be able to raise $500,000 from them by issuing new common shares. The treasurer also noted that the cash in the bank would increase from $600,000 to $782,000 by the end of 2012. He added that because of some changes in the accounting procedures, the current taxes payable would increase by $100,000.

The manager of the trade and other payables department said that she had approached several suppliers about extending the time before paying their bills. Despite the increased amount of purchases that the company would make before the end of the year, she was able to extend its trade and other payables by $200,000.

1. Use the above information to prepare

a. The adjustments in non-cash working capital accounts for the year 2012, and

b. The statement of cash flows for the year 2012.

2. Can the company raise more than half the cash from internally generated funds (as mentioned by the CEO) to finance the capital budget proposal?