Information Using the following information based on expected sales to forecast
ID: 2800388 • Letter: I
Question
Information Using the following information based on expected sales to forecast the monthly cash collections, accounts receivable balance, monthly cash disbursements, net cash flows, and cash surplus / deficit at the end of each month in the fourth quarter of 2017 (October - December 2017). Do not allow your firm to have a cash balance below the minimum cash balance and only borrow what you need. ALL SALES ARE MADE ON CREDIT a. In September 2017, sales were $50,000 b. The firm's total sales in 2016 were $2,028,000. The firm's accounts receivable balance on December 31, 2015 was $35,000. The firm's accounts receivable balance on December 31, 2016 was $65,000. C. Accounts payable are 60% of sales d. Operating expenses are 10% of sales e. The firm plans to purchase equipment in October costing $125,000 f. Beginning Cash Balance in October= $25,000 g. Minimum Cash Balance = $5,000 Assume there is an annual interest rate of 18% on short term debt and that the firm starts with no short term borrowing. i. Sales are expected to be $40,000 for October 2017, $400,000 for November 2017, and $100,000 for December 2017.Explanation / Answer
3.
Days sales outstanding = $50,000 / ($25,000 / 30)
= 15 days
It take 15 days for company to recover account receivables.
Account receivables at begining of October = $25,000.
4.
Cash collection in October = Beging balance + October sale × (15 / 30)
= $25,000 + (40,000 × 0.5)
= $25,000 + $20,000
= $45,000.
Cash collection in October is $45,000.