Harry\'s Carryout Stores has eight locations. The firm wishes to expand by two m

Question

Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures figures: Actual Forecast Additional Information November $260,000 January $400,000 April forecast $400,000 December 340,000 February 440,000 December 340,000 rulry 440 000 March 410,000 Of the firm's sales, 60 percent are for cash and the remaining 40 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 20 percent of sales and are purchased and received each month in an amount sufficient to cover the following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 15 percent of sales and is also paid in the month of sales. Overhead expense is $31,000 in cash per month. Depreciation $5,000 will be paid in March. Cash at the beginning of January is $92,000, and the minimum desired cash balance is $87,000. e is $10,600 per month. Taxes of $8.600 will be paid in January, and dividends of

Explanation / Answer

Monthly Loan (Repayment)

(87000-54800,92800-87000,26400)

** In the Feb Month End, Loan balance has to be payable only 26400 therefore the same is paid in Mar-2015 even though we can pay more than that by maintain minimum cash balance. Here I assumed that loan balance has to closed at the end of March.

Dear Friend, ** Cash And Credit Sales portions out of Total Sales 60% and 40% Cash Receipts Schedule November December January February March Sales (Given)         260,000 340,000.00    400,000.00    440,000.00    410,000.00 Credit Sales@ 40% 104,000.00 136,000.00    160,000.00    176,000.00    164,000.00 Collections Cash Sales (Sales-Credit Sales)    240,000.00    264,000.00    246,000.00 One Month after Sale(136000,160000,176000*20%)       27,200.00       32,000.00       35,200.00 Two Months After Sales (104000,136000,160000*80%)       83,200.00    108,800.00    128,000.00 Total Cash Receipts    350,400.00    404,800.00    409,200.00 Cash Payment Schedule: Material, Labor, Selling and Administration expense and Overhead expenses are paid in the month of sale itself. January February March Payment for Purchases @ 20% of next month sales (440000,410000,400000*20%)      88,000.00      82,000.00       80,000.00 Labor Expenses @ 50% of sales 200,000.00 220,000.00    205,000.00 S&A Expenses @ 15% of sales      60,000.00      66,000.00       61,500.00 OH Expenses@31000/- per month      31,000.00      31,000.00       31,000.00 Taxes only in Jan        8,600.00                    -                       -   Dividends                    -                      -           5,000.00 Total Cash Payments 387,600.00 399,000.00    382,500.00 CASH BUDGET ** Note: - Dear Friend, There is no data about how much amount of loan has to be Received or paid every month but the minimum cash balance to be maintained is $ 87,000 therefore we fix this cash at every month end and in excess/short of this cash balance can be paid/received to/from Bank towards loan / (repayment). January February March Total Cash Receipts 350400 404800 409200 Total Cash Payments 387600 399000 382500 Net Cash Flow -37200 5800 26700 Beginning Cash Balance(Closing abalnce of prev Month) 92000 87000 87000 Cumulative Cash Balance 54800 92800 113700

Monthly Loan (Repayment)

(87000-54800,92800-87000,26400)

32200 -5800 -26400 Ending Cash Balance(87000,87000,113700-26400) 87000 87000 87300 Cumulative Loan balance 32200 26400 0

** In the Feb Month End, Loan balance has to be payable only 26400 therefore the same is paid in Mar-2015 even though we can pay more than that by maintain minimum cash balance. Here I assumed that loan balance has to closed at the end of March.

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