Finance Homework2 – Attn: Prof-Hayat

 

This is for Prof-Hayat to work on. 🙂

 

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A firm with sales of $5,000 has the following balance sheet:  
       
Assets, Liabilities and Equity as of xx/xx/xx
Assets Liabilities and Equity
Accounts receivable $1,300 Accounts payable $1,200
Inventory 1,600 Long-term debt 2,500
Plant 1,700 Equity 900
Total $4,600 Total $4,600
       
The firm earns 20 percent on sales and expects those sales to rise to $5,500. The increased sales may 
require additional financing. Accounts receivable and inventory will increase, and trade accounts will 
also spontaneously increase with the increase in sales. Management expects to distribute 75% of earnings.
       
a. Determine the new balance sheet entries for those assets and liabilities that spontaneously change with thesuch as 22% or .22.
level of sales using the percent of sales technique. (Accounts receivable, inventory, and accounts payable vary with sales; the 
other entries do not). Round off to nearest percentage point,   
       
b. Will the firm need external financing to achieve sales of $5,500?  
       
c. Construct the pro forma balance sheet for sales of $5,500. Any new financing should be obtained by issuing new long‑term
debt. Any excess funds should be held in cash.    
       
Given the following information:    
Sales    
June $200,000    
July 200,000    
August 200,000    
September 300,000    
October 500,000    
November 200,000    
       
 – 2. 70% of the sales are for credit and are collected one month after the sale. Other receipts:  $50,000 in October
 – Variable disbursements: 60% of sales each month  
 – Other disbursements: $10,000 a month    
 – $80,000 for taxes in August      
 – $400,000 for debt repayment in November    
 – Beginning cash: $50,000      
 – Desired cash: $10,000      
       
Prepare a monthly cash budget for this firm.