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Question 3: • The actual sales and purchases for XYZ Co., for September and October 2012, along with its forecast sales and purchases for the period November 2012 through April 2013, follow. • The firm makes 20% of all sales for cash and collects on 40% of its sales in each of the 2 months following the sale. Other cash inflows are expected to be $12,000 in September and April, $15,000 in January and March, and $27,000 in February. The firm pays cash for 10% of its purchases. It pays for 50% of its purchases in the following month and for 40% of its purchases 2 months later. Sales Year 2012 2012 2012 2012 2013 2013 2013 2013 Month September October November December January February March April $210,000 250,000 170,000 160,000 140,000 180,000 200,000 250,000 Purchases $120,000 150,000 140,000 100,000 80,000 110,000 100,000 90,000
• Wages and salaries amount to 20% of the preceding month's sales. • Rent of $20,000 per month must be paid. Interest payments of $10,000 are due in January and April • A principal payment of $30,000 is also due in April. The firm expects to pay cash dividends of $20,000 in January and April. Taxes of $80,000 are due in April. • The firm also intends to make a $25,000 cash purchase of fixed assets in December. a) Assuming that the firm has a cash balance of $22,000 at the beginning of November, determine the end-of-month cash balances for each month, November through April b) Assuming that the firm wishes to maintain a $15,000 minimum cash balance, determine the required total financing or excess cash balance for each month, November through April. c) If the firm were requesting a line of credit to cover needed financing for the period November to April, how large would this line have to be? Explain your answer.