1. Cash Budgeting
Blake Henderson and Anna Kraft are preparing a plan to submit to venture capitalist to fund their business, Music Masters. The company plans to spend $380,000 on equipment in the first quarter of 2008. Salaries and other operating expenses (paid as incurred) will be $35,000 per month beginning in January 2008 and will continue at that level thereafter. The company will receive its first revenues in January 2009, with cash collections averaging $30,000 per month for all of 2009. In January 2010, cash collections are expected to increase to $100,000 per month and continue at that level thereafter. Assume that the company needs enough funding to cover all its cash needs until cash receipts start exceeding cash disbursements. How much venture capital funding should Blake and Anna seek?
2. Sales Budget
Suppose a lumber yard has the following data:
Accounts receivable, May 31: (.3 X May sales of $350,000)=$105,000
Monthly forecasted sales: June, $430,000; July, $440,000; August, $500,000; September, $530,000
Sales consist of 70% cash and 30% credit. All credit accounts are collected in the month following the sales. Uncollectible accounts are negligible and may be ignored.
Prepare a sales budget schedule and a cash collections budget schedule for June, July and August.
3. Finding operating and free cash flows
Consider the following balance sheets and selected data from the income statement of Keith Corporation.
Keith Corporation Balance Sheets
Keith Corporation Balance Sheets
|
Assets
|
31-Dec
|
|
2012
|
2011
|
|
Cash
|
$1,500
|
$1,000
|
|
Marketable securities
|
1,800
|
1,200
|
|
Accounts receivable
|
2,000
|
1,800
|
|
Inventories
|
2,900
|
2,800
|
|
Total current assets
|
$8,200
|
$6,800
|
|
Gross fixed assets
|
$29,500
|
$28,100
|
|
Less: Accumulated depreciation
|
14,700
|
13,100
|
|
Net fixed assets
|
$14,800
|
$15,000
|
|
Total assets
|
$23,000
|
$21,800
|
|
Liabilities and stockholders' equity
|
|
Accounts payable
|
$1,600
|
$1,500
|
|
Notes payable
|
2,800
|
2,200
|
|
Accruals
|
200
|
300
|
|
Total current liabilities
|
$4,600
|
$4,000
|
|
Long-term debt
|
5,000
|
5,000
|
|
Total liabilities
|
$9,600
|
$9,000
|
|
Common stock
|
$10,000
|
$10,000
|
|
Retained earnings
|
3,400
|
2,800
|
|
Total stockholders' equity
|
$13,400
|
$12,800
|
|
Total liabilities and stockholders' equity
|
$23,000
|
$21,800
|
|
Keith Corporation Income Statement Data (2012)
|
|
Depreciation expense
|
$1,600
|
|
Earnings before interest and taxes (EBIT)
|
2,700
|
|
Interest expense
|
367
|
|
Net profits after taxes
|
1,400
|
|
Tax rate
|
40%
|
1) Calculate the firm's net operating profit after taxes (NOPAT) for the year ended December 31, 2012.
2) Calculate the firm's operating cash flow (OCF) for the year ended December 31, 2012.
3) Calculate the firm's free cash flow (FCF) for the year ended December 31, 2012.
4. Cost of Debt using the approximation formula.For each of the $1,000 par-value bonds, assuming annual interest payment and a 40% tax rate, calculate the after-tax cost to maturity using the approximation formula.
Discount (-) or Coupon Interest
Bond Life Underwriting fee Premium (+) Rate
A 20 $25 ($20) 9%
B 16 40 $10 10%
C 15 30 ($15) 12%
D 25 15 par 9%
E 22 20 ($60) 11%
5. Various and Capital Structures: Charter Enterprises currently has $1 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, and 90%. (Note: The amount of total assets would not change). Is there a limit to the debt ration value?