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Print Ads

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Submitted By dishauiu
Words 318
Pages 2
Faculty : Mussabir sir
Course : FIN : 3123
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehls Doll Shop. Business has been good, but 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 just 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 $4,800 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $6,000-this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000. | Sales | Purchases | December | 160000 | 40000 | January | 40000 | 40000 | February | 60000 | 40000 |

a. Prepare a cash budget for December, January, and February.
TEXTBOOK ANSWER :
DECEMBER DEFICIT : 4,400
January Deficit : 11,200
February surplus : 2000
b. Now suppose that 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 companys loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal). Remember to include a brief discussion of each problem.

Textbook answer : 164,400

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