Question

Determine the total cash inflows, the total cash outflows, and the expected change in cash for each month from January to July, 2019. Show your work in excel using excel functions. Based the findings, explain in your own words whether the company should borrow/invest and how much and in which months.

The management estimates total sales for the period January, 2019 through June 2019 based on actual sales from the immediate past six months. The following assumptions are made:

The Sales were $125,000 in July 2018 and then the sales grew by 8% each month for the first three months (i.e., August to October 2018) and by 6% for the next two months (i.e., November and December 2018). The sales are expected to grow by 3% each month thereafter.

35% of the Sales are collected in the same month. 33% of the sales are collected in the following month. 31% in collected after and the remainder are not collected.

The Purchases are 60% of each month’s sales and paid in the same month.

Wages and Salaries are $25,000 each month and paid in the same month.

Other administrative expenses are $15,000 and paid in the same month.

Depreciation expense is $5,000 each month.

An electrical device worth $150,000 will be purchased on credit in April 2019. $75,000 will be paid immediately and the balance will be paid in May, 2019.

The company had previously taken a loan of $125,000. The annual interest rate is 5%. The interest is paid twice a year in June and December each year. Assume that no principal repayments are made in this period, only interest payments are made.

The company pays rent of $2,500 quarterly (in March, June, September, and December each year).

Answer 1

Statement of cash inflow and outflow
	Jan	Feb	March	April	May	June	July
Cash Inflow	173,910.45	180,680.05	186,100.45	191,683.46	197,433.97	203,356.98	209,457.69
Less: Cash Outflow
Purchases	109,340.61	112,620.83	115,999.45	119,479.43	123,063.82	126,755.73	130,558.40
Wages $ Salaries	25,000.00	25,000.00	25,000.00	25,000.00	25,000.00	25,000.00	25,000.00
Other Administrative expenses	15,000.00	15,000.00	15,000.00	15,000.00	15,000.00	15,000.00	15,000.00
Electrical Device	-	-	-	75,000.00	75,000.00	-	-
Interest on loan	-	-	-	-	-	3,125.00	-
Rent	-	-	2,500.00	-	-	2,500.00	-
cash out flow	149,340.61	152,620.83	158,499.45	234,479.43	238,063.82	172,380.73	170,558.40
Net cash outflow	24,569.85	28,059.22	27,601.00	(42,795.97)	(40,629.85)	30,976.25	38,899.29
Calculation of sales receipts
	Jan	Feb	March	April	May	June	July
Sales with increment @ 3% (A)	182,234.35	187,701.38	193,332.42	199,132.39	205,106.36	211,259.55	217,597.34
Cash collected in the same month@ 35% (A*35%)	63,782.02	65,695.48	67,666.35	69,696.34	71,787.23	73,940.84	76,159.07
Cash collected in the following month@ 33%	58,385.76	60,137.33	61,941.45	63,799.70	65,713.69	67,685.10	69,715.65
Cash collected in the 2nd month@ 31%	51,742.67	54,847.23	56,492.65	58,187.43	59,933.05	61,731.04	63,582.97
	173,910.45	180,680.05	186,100.45	191,683.46	197,433.97	203,356.98	209,457.69
Calculation of purchase
	Jan	Feb	March	April	May	June	July
Sales	182,234.35	187,701.38	193,332.42	199,132.39	205,106.36	211,259.55	217,597.34
Purchases@ 60%	109,340.61	112,620.83	115,999.45	119,479.43	123,063.82	126,755.73	130,558.40
Calculation of previous month sale
July	$125,000
August	$135,000.00	($ 125000*108%)
Sept	$145,800.00	($ 135000*108%)
October	$157,464.00	($ 145800*108%)
November	$166,911.84	($ 157464*106%)
December	$176,926.55	($ 157464*106%)
january	$182,234.35	($ 176926.55*103%)
Depreciation shall not be considered as this is not the cash expense.