In: Finance
Dorothy Koehl recently leased space in the Southside Mall and
opened a new business, Koehl's Doll...
Dorothy Koehl recently leased space in the Southside Mall and
opened a new business, Koehl's Doll Shop. Business has been good,
but Koehl frequently run out of cash. This has necessitated late
payment on certain orders, which is beginning to cause a problem
with suppliers. Koehl plans to borrow from the bank to have cash
ready as needed, but first she needs a forecast of how much she
should borrow. Accordingly, she has asked you to prepare a cash
budget for the critical period around Christmas, when needs will be
especially high.
Sales are made on a cash basis only. Koehl's purchases must be
paid for during the following month. Koehl pays herself a salary of
$4,400 per month, and the rent is $1,900 per month. In addition,
she must make a tax payment of $13,000 in December. The current
cash on hand (on December 1) is $200, but Koehl has agreed to
maintain an average bank balance of $4,000 - this is her target
cash balance. (Disregard the amount in the cash register, which is
insignificant because Koehl keeps only a small amount on hand in
order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and
February are shown below. Purchases during November amounted to
$150,000.
|
Sales |
Purchases |
December |
$120,000 |
|
$45,000 |
|
January |
42,000 |
|
45,000 |
|
February |
62,000 |
|
45,000 |
|
- Prepare a cash budget for December, January, and February.
I. Collections and Purchases: |
|
|
|
|
Sales |
$ |
$ |
$ |
Purchases |
$ |
$ |
$ |
Payments for purchases |
$ |
$ |
$ |
Salaries |
$ |
$ |
$ |
Rent |
$ |
$ |
$ |
Taxes |
$ |
--- |
--- |
Total payments |
$ |
$ |
$ |
Cash at start of forecast |
$ |
--- |
--- |
Net cash flow |
$ |
$ |
$ |
Cumulative NCF |
$ |
$ |
$ |
Target cash balance |
$ |
$ |
$ |
Surplus cash or loans needed |
$ |
$ |
$ |
- Suppose Koehl starts selling on a credit basis on December 1,
giving customers 30 days to pay. All customers accept these terms,
and all other facts in the problem are unchanged. What would the
company's loan requirements be at the end of December in this case?
(Hint: The calculations required to answer this part are
minimal.)
$