Exam 14: Short-Term Financial Planning

Predicting a firm's future financial needs includes all of the following steps except:

Forecasts of revenues and their related expenses are the basis on which firms forecast their future financing needs.

The chief financial officer of AJAX Industries 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

Buster Enterprises' projected sales for the first six months of 2010 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 28,2010 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).Buster Enterprises 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 $15,000 at the beginning of each month.What is Buster Enterprises' total cash receipts for April 2010?

Lindsey Insurance Co.has current sales of $10 million and predicts next year's sales will grow to $14 million.Current assets are $3 million and fixed assets are $4 million.The firm's net profit margin is 7 percent after taxes.Presently,Lindsey has $900,000 in accounts payable,$1.1 million in long-term debt,and $5 million (including $2.5 million in retained earnings)in common equity.Next year,Lindsey projects that current assets will rise in direct proportion to the forecasted sales,and that fixed assets will rise by $500,000.Lindsey also plans to pay dividends of $400,000 to common shareholders. a.What are Lindsey's total financing needs for the upcoming year? b.Given the above information,what are Lindsey's discretionary financing needs?

Mercer,Inc.had the following sales for the past six months.Mercer 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 Mercer's total cash receipts for the month of May?

Discretionary financing needed is equal to projected total assets minus projected total liabilities.

Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 to be as follows: Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2010 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1st,2010.Assume that the interest rate on short-term borrowing is 1% per month.What is Fielding's projected total receipts (collections)for April?

The accuracy of the percent of sales forecast method is impaired if

CBD Computer Inc.is attempting to estimate its needs for funds during each of the months covering the third quarter of 20XX.Pertinent information is given below: a.Past and estimated future sales for 20XX: b.Rent expense is $2,500 per month. c.A quarterly interest payment on $100,000 in 7% notes payable is to be paid during September,20XX. d.Wages and salaries are estimated as follows: Payments are made within the month in which the wages are earned. e.Sixty percent of sales are for cash,with the remaining 40% collected in the month following the sale. f.CBD pays 80% of the sales price for merchandise and makes payment in the same month in which the sales occur,although purchases are made in the month prior to the anticipated sales. g.CBD plans to pay $7,500 in cash for a new forklift truck in July. h.Short-term loans can be obtained at the end of each month at 13% annual interest with interest paid during each month for which the loan is outstanding. i.CBD's ending cash balance for June 30,200X is $67,000: the minimum balance the firm wishes to have in any month is $35,000. Required: Set up a cash budget for CBD for the quarter ended September 30,20XX.

For a typical firm expecting higher sales,external financing needed will be greater than discretionary financing needed.

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Thompson Manufacturing Supplies' 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).Thompson 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 Thompson's projected total receipts (collections)for March?

Dorian Industries' projected sales for the first six months of 2010 are given below: 20% of sales are collected in cash at time of sale,50% are collected in the month following the sale,and the remaining 30% are collected in the second month following the sale.Cost of goods sold is 85% 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 $70,000/month.The company's cash balance as of February 28,2010 will be $10,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short term borrowing as of February 28,2010.Ignore any interest on short-term borrowing.The company must have a minimum cash balance of $40,000 at the beginning of each month.Dorian's projected EBIT for March 2010?

The "percentage" used in the percent of sales calculation can come

The balance sheet of the Emery Company is presented below: Emery Company Balance Sheet March 31,2010 (Millions of Dollars) For the year ending March 31,2010,Jackson had sales of $58 million.The common stockholders receive all net earnings of the firm in the form of cash dividends,leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets). Construct a pro forma balance sheet for March 31,2011 for an expected level of sales of $75.4 million.Assume current assets and accounts payable vary as a percent of sales,and fixed assets remain at the present level.Use notes payable as discretionary financing.

Mercer,Inc.had the following sales for the past six months.Mercer 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 Mercer's total cash receipts for the month of June?

What is the primary tool for short-term financial forecasting?

Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 to be as follows: Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2010 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1st,2010.Assume that the interest rate on short-term borrowing is 1% per month.How much short term financing is needed by March 30,2010?

Which of the following would not be found in a cash budget?