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Assignment 3: Analyze the
Flow of a Venture
sells computer printers. Its forecasted sales over the last three months of the third quarter of 2007 are as follows:
| Month | Sales Forecast | ||
| July | $1,200,000 | ||
| August | $1, | 500,000 | |
| September | $ | 2,000,000 |
At the end of June 2007, ABC Computers’s balance sheet was as follows:
| Balance Sheet as of June 30, 2007 | ||||
| $ | 100,000 | Accounts Payable | ||
| Accounts Receivable | 900,000 | Notes Payable | ||
| Inventories | Long-term debt | |||
| Net fixed assets | Total | 1,400,000 | ||
| Equity | 600,000 | |||
| Total Assets |
The sales are made on credit terms of net 30 days and are collected the following month. No bad debts are expected. The inventories in the balance sheet are the minimum level that the company wants to maintain. Inventory is bought in the month of sale and paid for in cash.
- The cost of goods sold averages 72% of revenues.
- Additional cash expenses average 4% of revenues.
- Depreciation is $7,000 each month.
- Taxes are paid monthly and the effective income tax rate is 35%.
- The annual interest rate on long-term debt is 11%.
- The annual interest rate on bank loans is 13%.
ABC Computers doesn’t plan any capital expenditures during the time period analyzed and no dividends will be paid. ABC Computers’ desired end-of-month cash balance is $110,000. ABC Computers’ CFO anticipates that if there are any cash shortages during the period, he will increase the firm’s notes payable to the bank (13% interest rate). Here is your task:
- Create monthly pro forma income statements for July 2007, August 2007, September 2007, and for the quarter ending September 30, 2007.
- Create monthly pro forma balance sheets at the end of July 2007, August 2007, and September 2007.
- Create a cash budget for July 2007, August 2007, and September 2007.
- Create pro forma cash flow statements for July 2007, August 2007, and September 2007.
- Calculate the maximum amount of money ABC Computers will need to borrow.
