Question

CASH BUDGET & PRO FORMA INCOME STATEMENT

You are given the following information for the Thib’s Oil Service Company:

Actual Sales 3rd QTR                    Estimated Sales 4th QTR

July        $1,200,000                               Oct.                $3,000,000

Aug.       $1,400,000                              Nov. $5,000,000

Sept.     $1,600,000                              Dec.                $7,000,000

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Actual Purchases 3rd QTR             Estimated Purchases 4th QTR

July       $1,000,000                              Oct.                  $3,000,000

Aug.      $1,500,000                               Nov.    $4,000,000

Sept.     $2,000,000                               Dec.               $1,000,000

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One-half (50 percent) of the sales each month are for cash, 30 percent is collected one month later and 20 percent is collected two months later.

Thib pays cash for 90% of its purchases and pays the other 10% the month following the purchase.

Other monthly cash expenses are estimated at $50,000 (rent), $90,000 (salaries) and $10,000 (interest).

Depreciation is $40,000 per month.

Cost of Goods Sold is 70% of Sales.

No change is expected in the 50% income tax rate. Income tax expense for October through December (4th QTR) will be paid in December.

Preferred Dividends of $100,000 will be paid in November.

Equipment totaling $4,000,000 will be purchased for cash in October.

In November, the firm will sell equipment for its book value (no tax consequence) of $200,000. The money will be collected in December.

The Company intends to float a $10,000,000 (raise capital by issuing bonds) bond issue in October. There will be 5% investment banker fee which will be paid in November (disregard for the income statement). The money for the bond issue will be received in December.

The cash balance is $100,000 on October 1, and a minimum balance of $100,000 is desired.

Prepare a Pro Forma Income Statement and a monthly Cash Budget for the Company AND ANSWER THE QUESTIONS ON THE ANSWER SHEET.

YOU MUST TYPE YOUR PRO FORMA INCOME STATEMENT, CASH BUDGET AND THE ANSWEER SHEET.

PRO FORMA INCOME STATEMENT

4th QTR (000’s)

SALES                                    $15,000

___________                          __________________

Gross Profit                            __________________

Rent(50k)                                      150

Salaries((90k)                               270

EBDIT                                     ___________________

________

                  

________

________

CASH BUDGET 4^th QTR (000’s)

                                                            AUG                    SEPT                     OCT                    NOV                    DEC

SALES                                                1,400                    1,600                    3,000                    5,000                    7,000

PURCHASES                                    1,500                    2,000                    3,000                    4,000                    1,000

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I. CASH INFLOWS

1.Cash Sales                                                                                               

2.                                                                                                      

3.Col AR 2                                                                                                                                                                                                                          

4.Sell Equipment                                                                                       

5.

             TOTAL CASH INFLOWS                         ____________________________________________                              

II. CASH OUTFLOWS

1. Cash Purchases                                                                       __________________________________

2. Pay AP                                                                                      __________________________________

3. Rent, Salaries, Interest                                                                                  

4.                                                                                         

5.

6.

7.

                             

III. TOTAL CASH OUTFLOWS                

IV. NET CASH FLOW   

V.

VI.

VII.                                               

              

              

  

What is the firm’s Cost of Goods Sold?                                            $_____________

What is the firm’s Net Income (Income After Taxes)                                  $_____________

What is the Income Available to Common Stockholders?               $_____________

What is the expected total cash inflow for October?                                    $_____________

What is the expected net cash flow for October?                              $_____________

What is the expected total cash outflow for November?                  $_____________

What is the expected surplus or shortage for October?                    $_____________

What is the required cash balance?                                                   $_____________

What is the total amount of loan the Company needs?                     $______________

Will the firm be able to pay off its loan is December?                    Yes or No

Answer 1

Thib's Coil Service Company
PROFORMA INCOME STATEMENT
	(000's)
Sales	15000
Cost of good sold	10500
Gross Profit	4500
Expenses:
Rent (50,000 per month)	150
Salaries (90,000 per month)	270
EBDIT	4080
Depreciation (40,000 per month)	120
EBIT	3960
Interest (10,000 per month)	30
EBT	3930
Income Tax (50%)	1965
Net income	1965

Thib's Coil Service Company Cash Budget for the quarter ending December October November December Total Beginning Cash Balance 100 -4690 -5620 100 Collection from customers 2260 3720 5600 11580 From Sales of equipment 200 200 From issue of bonds 10000 10000 Cash available for disbursements 2360 -970 10180 21880 Cash disbursements    For cost of goods 2900 3900 1300 8100    For Rent 50 50 50 150    For Salaries 90 90 90 270    For Interest 10 10 10 30    For Income Tax 1965 1965    For preferred Dividend 100 100    For equipment purchases 4000 4000    For Investment bankerfee 500 500 0 Total Disbursements 7050 4650 3415 15115 Cash surplus / (deficit) -4690 -5620 6765 6765 Minimum Cash balance 100 100 100 100 Excess / (shortfall) -4790 -5720 6665 6665
Schedule of cash collections:
	October	November	December	Total
Budgeted Sales	3000	5000	7000	15000
Collections:
From August sales	280			280
From September sales	480	320		800
From October sales	1500	900	600	3000
From November sales		2500	1500	4000
From December sales			3500	3500
Total cash collections from sales	2260	3720	5600	11580
Schedule of cash disbursements for cost of goods:
	October	November	December	Total
Budgeted Purchases	3000	4000	1000	8000
Cash disbursements:				0
For September purchases	200			200
For October purchases	2700	300		3000
For Noveember purchases		3600	400	4000
For December purchases			900	900
Total cash disbrsements for purchases	2900	3900	1300	8100

Cost of goods sold	$10,500,000
Net Income	$1,965,000
Income available for common stockholders	$1,865,000
Expected cash inflow in October	$2,260,000
Expected net cash flow for October	-$4,690,000
Expected total cash outflow for November	$4,650,000
What is the expected surplus or shortage for October	$4,790,000	shortage
What is the required cash balance	$100,000
What is the total amounts of loan the company needs	$5,720,000
Will the firm be able to pay off its loan in December?	Yes