FIN 3030 Week-5 Assignment-3
Of Redbird’s sales, 20% is for cash, another 60% is collected in the month following sale, and 20 percent is collected in the second month following sale. November and December sales for 20X1 were $220,000 and $175,000, respectively.
Redbird purchases its raw materials two months in advance of its sales equal to 70% of its final sales price. The supplier is paid one month after it makes delivery. For example, purchases for
April
sales are made in
February
, and payment is made in
March
.
In addition, Redbird pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $23,000 are made each quarter beginning in March.
The company’s cash balance at December 31, 20X1, was $22,000; a minimum balance of $20,000 must be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the beginning of
May
.
January
$100,000
May
$275,000
February
$110,000
June
$250,000
March
$130,000
July
$235,000
April
$250,000
August
$160,000
- Prepare a cash budget for Redbird covering the first seven months of 2010.
- They have $100,000 in notes payable due in July that must be repaid, or an extension renegotiated. Will they be able to pay off the notes?
- What are the external funding needs, or how much can they pay back?