Finance Homework2 – Attn: Prof-Hayat
This is for Prof-Hayat to work on. 🙂
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Order Paper NowA 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. |