Finance Homework2 – Attn: Prof-Hayat
This is for Prof-Hayat to work on. 🙂
| A firm with sales of $5,000 has the following balance sheet: | |||
| Assets, Liabilities and Equity as of xx/xx/xx | |||
| Assets | Liabilities and Equity | ||
| Accounts receivable | $1,300 | Accounts payable | $1,200 |
| Inventory | 1,600 | Long-term debt | 2,500 |
| Plant | 1,700 | Equity | 900 |
| Total | $4,600 | Total | $4,600 |
| The firm earns 20 percent on sales and expects those sales to rise to $5,500. The increased sales may | |||
| require additional financing. Accounts receivable and inventory will increase, and trade accounts will | |||
| also spontaneously increase with the increase in sales. Management expects to distribute 75% of earnings. | |||
| a. Determine the new balance sheet entries for those assets and liabilities that spontaneously change with thesuch as 22% or .22. | |||
| level of sales using the percent of sales technique. (Accounts receivable, inventory, and accounts payable vary with sales; the | |||
| other entries do not). Round off to nearest percentage point, | |||
| b. Will the firm need external financing to achieve sales of $5,500? | |||
| c. Construct the pro forma balance sheet for sales of $5,500. Any new financing should be obtained by issuing new long‑term | |||
| debt. Any excess funds should be held in cash. | |||
| Given the following information: | |||
| Sales | |||
| June | $200,000 | ||
| July | 200,000 | ||
| August | 200,000 | ||
| September | 300,000 | ||
| October | 500,000 | ||
| November | 200,000 | ||
| – 2. 70% of the sales are for credit and are collected one month after the sale. Other receipts: $50,000 in October | |||
| – Variable disbursements: 60% of sales each month | |||
| – Other disbursements: $10,000 a month | |||
| – $80,000 for taxes in August | |||
| – $400,000 for debt repayment in November | |||
| – Beginning cash: $50,000 | |||
| – Desired cash: $10,000 | |||
| Prepare a monthly cash budget for this firm. | |||
