Dorothy Koehl recently leased space in the southsife mall and
opened a new business Koehls 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. Koehls purchases must be
paid for during the following month. Koehl pays herself a salary of
$4200 per month, and the rent is $1600 per month. In addition she
must make a tax payment of $12000 in December. The current cash on
hand on December 1 is $450, but Koehl has agreed to maintain an
average bank balance of $4500 tbis us her target cash
balance.
The estimated sales and purchases for Decemeber, January, and
February are shown below. Purchased during November amounted to
$160000.
Sales. Purchases
December. $170000. $30000
January. $34000. $30000
February. 56000. 30000
a. Prepare a cash budget for December, January, and
February
December. January. February
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
b. 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?