Exam 14: Short-Term Financial Planning

LPD Logistics,Inc.'s projected sales for the first six months of 2010 are given below. 20% of sales are collected in the month of the sale,75% are collected in the month following the sale,and 5% are written off as uncollectible.Cost of goods sold is 80% of sales.Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February).Total other cash expenses are $35,000/month.The company's cash balance as of February 1,2010 will be $30,000.Excess cash will be used to retire short-term borrowing (if any).LPD has no short term borrowing as of February 28,2010.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $20,000 at the beginning of each month.What is LPD's projected cash balance as of April 1,2010?

Using the percent of sales method,projected common stock on the 2010 pro forma balance sheet is equal to (Common Stock 2009/Sales 2009)times Projected Sales 2010.

The CFO of Twine Enterprises expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011.Current assets in 2010 are equal to $5,000,000.Using the percent of sales method,projected current assets for 2011 are equal to

In what way does a cash budget provide management with better information about financing requirements than a pro forma balance sheet?

Matterhorn,Inc.had the following sales for the past six months.Matterhorn collects its credit sales 30% in the month of sale,60% one month after the sale,and 10% two months after the sale. What are Matterhorn's total cash receipts for the month of May?

Other things equal,higher net profit margins mean higher discretionary financing needed.

The percent of sales method provides a general estimate,but the more detailed cash budget will ultimately be used to estimate financing needs.

When preparing pro forma financial statement,the income statement must be prepared first because the projected retained earnings balance on the balance sheet is based on the expected net income.

CraftCo,Inc.'s projected sales for the first six months of 2012 are given below: 40% of sales are collected in cash at time of sale,50% are collected in the month following the sale,and the remaining 10% are collected in the second month following the sale.Cost of goods sold is 60% of sales.Purchases are made in the month prior to the sales,and payments for purchases are made in the month of the sale.Total other cash expenses are $40,000/month.The company's cash balance as of February 28,2012 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).CraftCo,Inc.has no short term borrowing as of February 28,2012.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $15,000 at the beginning of each month.What is CraftCo,Inc.'s earnings before interest and taxes for April 2012?

Traditional financial forecasting takes the sales forecast as given and forecasts the corresponding expenses,assets,and liabilities of the firm.

Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.

The first step in a corporation's financial forecasting process is the determination of the firm's financing needs.

A firm's cash position would most likely be hurt by

LPD Logistics,Inc.'s projected sales for the first six months of 2010 are given below. 20% of sales are collected in the month of the sale,75% are collected in the month following the sale,and 5% are written off as uncollectible.Cost of goods sold is 80% of sales.Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February).Total other cash expenses are $35,000/month.The company's cash balance as of February 1,2010 will be $30,000.Excess cash will be used to retire short-term borrowing (if any).LPD has no short term borrowing as of February 28,2010.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $20,000 at the beginning of each month.What is LPD's projected gross profit for April?

Matterhorn,Inc.had the following sales for the past six months.Matterhorn collects its credit sales 30% in the month of sale,60% one month after the sale,and 10% two months after the sale. What are Matterhorn's total cash receipts for the month of June?

One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.

The percent of sales forecasting method works well because it accounts for economies of scale in assets such as inventory.

Spontaneous sources of financing include

Other things equal,if a firm increases its dividend payout ratio,its discretionary financing needed will also increase.

The cash budget consists of all the following factors EXCEPT