Advanced Managerial Finance

1. In preparation for the quarterly cash budget, the following revenue and cost information have been compiled. Prepare and evaluate a cash budget for the months of October, November, and December based on the information shown below.

Monthly Sales Monthly Purchases

August (actual) $3,000,000 $3,500,000

September (actual) $4,500,000 $2,000,000

October (forecast) $1,000,000 $ 500,000

November (forecast) $1,500,000 $ 750,000

December (forecast) $2,000,000 $1,000,000

a. The firm collects 60 percent of each month’s sales in cash and 40 percent is collected one month later.

b. Interest income of $50,000 on marketable securities will be received in December.

c. The firm pays cash for 40 percent of its monthly purchases and the balance due is paid in the following month.

d. Salaries and wages amount to 15 percent of the prior month's sales.

e. Sales commissions amount to 2 percent of the prior month's sales.

f. Lease payments of $100,000 must be made each month.

g. A principal and interest payment on an outstanding loan of $150,000 is due in December.

h. The firm pays dividends of $50,000 at the end of the quarter.

i. Fixed assets costing $600,000 will be purchased in December.

j. Monthly depreciation expense amounts to $45,000.

k. The firm has a beginning cash balance in October of $100,000 and must maintain a minimum cash balance of $200,000.

2. Suppose you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a ball park. You have three years left on the contract and you do not expect it to be renewed. Long lines limit sales and profits. You have developed four different proposals to reduce the lines and increase profits.

The first proposal is to renovate by adding another window. The second is to update the equipment at the existing windows. These two renovation projects are not mutually exclusive; you could take both projects. The third and fourth proposals involve abandoning the existing stand. The...