Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Cash in bank: $20,000
Receivables(net of allowance for doubtful accounts): $160,000
Merchandise inventory: $90,000
Total current assets: $270,000
Accounts payable(including accured operating expenses): $150,000
Working capital: $120,000

(the above breakdown is of the financial statement of june 30 and shows the current working capital)

Jake Marley is negotiating with the bank for a $200,000, 90-day 12% loan effective July 1 of the current year. If the bank grants the loan, the proceeds will be $194,000, which Marley intends to use on July 1 as follows: pay accounts payable, $150,000, purchase equipment $16,000 and add to bank balance $28,000

The bank loan officer asks Marley to prepare a forecase of his cash receipts and cash payments for the next 3 months to demonstrate that the loan can be repaid at the end of September.

Marley has made the following estimates which are to be used in preparing a 3 month cash budget: Sales (all on account) for July $300,000, Aug $360,000, Sept $270,000 and Oct $200,000. Past experience indicates that 80% of the receivables generated in any month will be collected in the month following the sale, 19% will be collected in the second month following the sale and 1% will prove uncollectible. Marley expects to collect $120,000 of the June 30 receivables in July and the remaining $40,000 in August.

Cost of goods sold consistently has averaged about 65% of sales. Operating expenses are budgeted at $36,000 per month plus 8% of sales. With the exception of $4,400 per month depreciation expense, all operating expenses and purchases are on account and are paid in the month following their incurrence.

Merchandise inventory at the end of each month should be sufficient to cover the following months sales.

INSTRUCTIONS:
A. Prepare a monthly cash budge showing estimated cash receipts and cash payment for July, August and September and the cash balance at the end of each month. Supporting schedules should be prepared for estimated collections on receivables, estimated merchandise purchases and estimated payments for operating expenses and accounts payable for merchandise purchases.

B. On the basis of this cash forecast, prepare a brief report to Marley describeing whether he will be able to repay the $200,000 bank loan at the end of September.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925992

Have any Question? 


Related Questions in Basic Finance

1 why should investors be concerned about market rents if

1. Why should investors be concerned about market rents if they are purchasing a property subject to leases? 2. What is meant by equity? 3. What are the similarities and differences between an overall rate and an equity ...

Consider rolling a fair 6-faced die twice let a be the

Consider rolling a fair 6-faced die twice. Let A be the event that the sum of the two rolls is atmost 6, and B be the event that the first one is an even number. (a) What is the probability that the sum of the two rolls ...

1 write the general form of a regression equation that has

1. Write the general form of a regression equation that has a single predictor variable. Identify the criterion variable, the predictor variable, the regression constant, and the regression coefficient. 2. A regression e ...

1 do you think renovation is more or less risky than a new

1. Do you think renovation is more or less risky than a new investment? 2. What is meant by the incremental cost of refinancing? 3. In general, what kinds of tax incentives are available for rehabilitation of real estate ...

Cortez art gallery is adding to its existing buildings at a

Cortez art gallery is adding to its existing buildings at a cost of $ 2 million. The gallery expects to bring in additional cash flows of $ 520,000, $ 700,000, and $ 1,000,000 over the next three years. Given a required ...

Suppose your company imports computer motherboards from

Suppose your company imports computer motherboards from Singapore. The exchange rate is given in Figure 21.1. You have just placed an order for 30,000 motherboards at a cost to you of 233.5 Singapore dollars each. You wi ...

1 credit report what are the six major areas of information

1. Credit Report. What are the six major areas of information that may be included on your credit report? 2. Credit Score. What factors determine your credit score and how are these factors weighted by FICO? 3. Vantage S ...

Does the estimated maximum preload threaten your bolts you

Does the estimated maximum preload threaten your bolts? You guess, since this is a conventional or typical joint, that the joint to bolt stiffness ratio is 5:1. You believe that the tensile loads applied to this joint in ...

A solid sphere with a uniform surface density is rolling

A solid sphere with a uniform surface density is rolling over a plane. It's translational kinetic energy is 80J. What is the kinetic energy of the rotational motion and the total kinetic energy?

Problems about the ability of borrowers to meet mortgage

Problems about the ability of borrowers to meet mortgage payments and the evolution of fixed interest rate mortgages with various payment patterns were discussed. Why didn't this evolution address problems faced by lende ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen