Question

The company's financial year is the calender year. Certain costs (incl. wages, rents and taxes) of 202500 € total are paid out in the middle of each month.

The company's first financial year is, exceptionally, only six months of length (1.7.-31.12.). At the beginning of the first financial year, the company has taken out a loan of 7200000 € total that has not been amortized. However, an interest of 5 % p.a. has been paid at the end of the financial year. The company has made an initial investment of 10800000 €. Half of the investment has been paid during the previous financial year and the rest must be paid at the beginning of the second financial year. Nothing has been sold yet during the the first financial year.

The revenues of the second financial year are estimated according to shipped (billed) quantities of 30000 units at a unit price of 300 € per unit. The variable costs consist of purchasing the materials and are expected to be 171 € per unit. At the end of the second financial year, 3600000 € of the debt must be amortized and an interest must be paid.   

The company then specifies the plan for the second financial year. 28 % of the annual volumes are delivered during the first half of the year and 72 % during the second. Monthly volumes are constant during both phases and the customers are given one month for payments. The company purchases the materials for the second financial year in three equal instalments. The first batch has arrived at the end of December, but the bill is not due until at the end of January. The next batches arrive at the beginning of May and September. In order for the business to run smoothly during the next year as well, the company purchases an additional batch of materials for 7500 units towards the end of December (20.12). Each batch is payable in 14 days.

It is recommended to make a table of months having the monthly information of incoming and outgoing payments allocated to the three cash flows, changes in cash and equivalents and total cash and equivalents.

Calculate the cash flow from operating activities and the cash flow from investment activities of the first financial year.

Answer 1

Cash flows for the period from 01.07 to 31.12 of First Financial Year							Amount in Euros
		Jul.	Aug.	Sep.	Oct.	Nov.	Dec.	Total
Cash , Cash Equivalents - Beginning of the period	a	0	15,97,500	13,95,000	11,92,500	9,90,000	7,87,500	0
Cash flow from operating activities
costs (incl. wages, rents and taxes)		-2,02,500	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-12,15,000
Net cash used in operating Activities	b	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-12,15,000
Cash flow from investing activities
Initial Investment - 50% of 10800000		-54,00,000	-	-	-	-	-	-54,00,000
Net cash used in investing Activities	c	-54,00,000	-	-	-	-	-	-54,00,000
Cash flow from Financing activities
Loan Taken		72,00,000	-	-	-	-	-	72,00,000
Interest @ 5% for 6 months (on 7200000) Payments							-1,80,000	-1,80,000
Net cash provided by Financing Activities	d	72,00,000	-	-	-	-	-1,80,000	70,20,000
Net Increse/ (Decrease) in Cash, Cash equivalents	e=b+c+d	15,97,500	-2,02,500	-2,02,500	-2,02,500	-2,02,500	-3,82,500	4,05,000
Cash , Cash Equivalents - End of the period	f=a+e	15,97,500	13,95,000	11,92,500	9,90,000	7,87,500	4,05,000	4,05,000
Cash flow from operating activities	b	above						-12,15,000
Cash flow from investment activities	c	above						-54,00,000