Complete a cash budget for Hoyt, Inc.

Hoyt, Inc. has estimated current year sales (in millions) for the next four quarters.

Q1 $240

Q2 $250

Q3 $205

Q4 $350

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Sales for the 1st quarter next year is projected to be $230.

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Accounts Receivable at the beginning of the year was $100.

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Beginning Accounts Payable were $60.

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The beginning cash balance is $50.

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Hoyt, Inc. cash collection schedule is as follows: 60% of sales in the current

quarter, 40% in the 1st quarter after sales.

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Purchases from suppliers in a quarter are equal to 50% of the next quarter’s

forecasted sales

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Suppliers are normally paid in 50% in the quarter purchases are made and 50% in the following quarter.

Wages, taxes and other expenses are 20% of current quarter sales

Hoyt, Inc. maintains a minimum cash balance of $30

Canyon Buff Corp. has developed a new construction chemical that greatly improves the durability and weatherability of cement-based materials. After spending $500,000 on the research of the potential market for the new chemical, Canyon Buff is considering a project that requires an initial investment of $9,000,000 in manufacturing equipment.

• The equipment must be purchased before the chemical production can begin. For tax purposes, the equipment is subject to a 5-year straight-line depreciation schedule, with a projected zero salvage value. For simplicity, however, we will continue to assume that the asset can actually be used out into the indefinite future (i.e., the actual useful life is effectively infinite).

• Canyon Buff anticipates that the sales will be $30,000,000 in the first year (Year 1). They expect that sales will initially grow at an annual rate of 6% until the end of sixth year. After that, the sales will grow at the estimated 2% annual rate of inflation in perpetuity.

• The cost of goods sold is estimated to be 72% of sales.

• The accounting department also estimates that at introduction in Year 0, the new product's required initial net working capital will be $6,000,000. In future years accounts receivable are expected to be 15% of the next year sales, inventory is expected to be 20% of the next year’s cost of goods sold and accounts payable are expected to be 15% of the next year’s cost of goods sold.

• The selling, general and administrative expense is estimated to be $6,000,000 per year, but $1 million of this amount is the overhead expense that will be incurred even if the project is not accepted.

• The market research to support the product was completed last month at a cost of $500,000 to be paid by the end of next year.

• The annual interest expense tied to the project is $1,000,000

• Canyon Buff has a cost of capital of 20% and faces a marginal tax rate of 30% and an average tax rate is 20%.

QUESTION:

Calculate six-year projections for free cash flows. Remember to include cash flows from the income statement and depreciation, changes in net working capital, and capital expenditures or dispositions.

Question:

In Case 1, when calculating incremental unlevered net income, should we include all the expenses mentioned in the case? If not, what expenses should we exclude and why?

Case 1:

Chem Tough Corp. has developed a new construction chemical that greatly improves the durability and weatherability of cement-based materials. After spending $500,000 on the research of the potential market for the new chemical, Chem Tough is considering a project that requires an initial investment of $9,000,000 in manufacturing equipment.

 The equipment must be purchased before the chemical production can begin. For tax purposes, the equipment is subject to a 5-year straight-line depreciation schedule, with a projected zero salvage value. For simplicity, however, we will continue to assume that the asset can actually be used out into the indefinite future (i.e., the actual useful life is effectively infinite).

 Chem Tough anticipates that the sales will be $30,000,000 in the first year (Year 1). They expect that sales will initially grow at an annual rate of 6% until the end of sixth year. After that, the sales will grow at the estimated 2% annual rate of inflation in perpetuity.

 The cost of goods sold is estimated to be 72% of sales.

 The accounting department also estimates that at introduction in Year 0, the new product's required initial net working capital will be $6,000,000. In future years accounts receivable are expected to be 15% of the next year sales, inventory is expected to be 20% of the next year’s cost of goods sold and accounts payable are expected to be 15% of the next year’s cost of goods sold.

 The selling, general and administrative expense is estimated to be $6,000,000 per year, but $1 million of this amount is the overhead expense that will be incurred even if the project is not accepted.

 The market research to support the product was completed last month at a cost of $500,000 to be paid by the end of next year.

 The annual interest expense tied to the project is $1,000,000.

 Chem Tough has a cost of capital of 20% and faces a marginal tax rate of 30% and an average tax rate is 20%.

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10]

[The following information applies to the questions displayed below.]

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Exercise 8-12

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Prepare a schedule of expected cash collections for July, August, and September.

Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

Prepare an income statement that computes net operating income for the quarter ended September 30.

Prepare a balance sheet as of September 30.

Question 4 Budgeting – To be done on Excel. Email your answer to tutor.

Hudson Holdings Ltd is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet at June 30^th is shown below:

Hudson Holdings Ltd managers have made the following additional assumptions and estimates:

• Estimated sales for July, August, September, and October will be $252,000, $276,000, $264,000, and $288,000, respectively.

• All sales are on credit and all credit sales debts are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

• Each month’s ending inventory must equal 30% of the cost of the next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

• Monthly selling and administrative expenses are always $72,000. Each month $6,000 of this total amount is depreciation expense and the remaining $66,000 relates to expenses that are paid in the month they are incurred.

• The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any shares or repurchase its own shares during the quarter ended September 30.

REQUIRED

1. Prepare a schedule of expected cash collections for July, August, and September. Also calculate total cash collections for the quarter ended September 30.

(b)

i           Prepare a merchandise purchases budget for July, August and September and also calculate total merchandise purchases for the quarter ended September 30.                                                                                    

ii          Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also calculate total cash disbursements for merchandise purchases for the quarter ended September 30.                                                                                                           

(c) Prepare an income statement for the quarter ended September 30. (Use the absorption format)                                                                                              

(d) Prepare a balance sheet as at September 30.                                              

Question 4 To be done on Excel.

………………REFER TO THE DATA IN QUESTION 4 ABOVE………………………………..

Hudson Holdings Ltd is considering making the following changes to the assumptions underlying its master budget.

1. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale.

2. Each month’s ending inventory must equal 20% of the cost of next month’s sales.

3. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase.

All other information from question 4 above that is not mentioned remains the same.

REQUIRED:

Using the new assumptions described above, complete the following requirements:

a.

Prepare a schedule of expected cash flows for July, August, and September. Also calculate total cash collections for the quarter ended September 30.                                 

b.

1. Prepare a merchandise purchases budget for July, August, and September. Also calculate total merchandise purchases for the quarter ended September 30.             

2. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August and September. Also calculate total cash disbursements for the quarter ended September 30.

c.

Prepare an income statement for the quarter ended September 30. (Use the absorption format)

d.

Prepare a balance sheet as at September 30.                                              

P14–19Ethics Problem Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase. What course of action would you recommend to your CEO? If your CEO came to you first and recommended reducing the current quarter’s earnings, what would be your response?

2. A small business takes out a $100,000 loan on April 1, 2020. The loan interest rate is j4 = 6%. They are to repay the loan with quarterly payments of $4,000 for 5 years (first payment on July 1, 2020), followed by n quarterly payments of 5,000 for as long as necessary. Determine the total number of loan payments made and both the amount and calendar date of the smaller final payment made one quarter after the last 5,000 payment.

In a survey, people were asked "Which flavor of ice cream do you like, chocolate or vanilla?" The result is summarized in the following table. Each number is the frequency (count) falling into that cell.

What is the percent of children who like chocolate ice cream among all the people responded in this survey?

Round your answer to the nearest 0.01.

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Question 181 pts

In a survey, people were asked "Which flavor of ice cream do you like, chocolate or vanilla?" The result is summarized in the following table. Each number is the frequency (count) falling into that cell.

What is the percent of teens who like vanilla ice cream among all the teens responded in this survey?

Round your answer to the nearest 0.01.

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Question 191 pts

In a survey, people were asked "Which flavor of ice cream do you like, chocolate or vanilla?" The result is summarized in the following table. Each number is the frequency (count) falling into that cell.

What percent of people are adults among those who like neither ice creams?

Round your answer to the nearest 0.01.

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Question 201 pts

In a survey, people were asked "Which flavor of ice cream do you like, chocolate or vanilla?" The result is summarized in the following table. Each number is the frequency (count) falling into that cell.

What is the percent of people who like vanilla ice cream regardless of their age?

Round your answer to the nearest 0.01.

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Question 211 pts

In a survey, people were asked "Which flavor of ice cream do you like, chocolate or vanilla?" The result is summarized in the following table. Each number is the frequency (count) falling into that cell.

What percent of people are adults in this survey?

Round your answer to the nearest 0.01.

Consider a nation with a large economy, like Canada, and a nation with a smaller economic output, like Costa Rica. How can Canada, with an absolute advantage in the production of most goods and services, benefit from trade with Costa Rica?