Question 1
Cash Budget Chapter 3(please just create the cash budget and nothing else) The owner of Lazy Inn has been requested by First National Bank to submit a cash budget for the next calendar year. With that in mind, please prepare the following: ? a 12-month projected cash budget statement for 2012 (assume that your beginning cash (Jan 1) is $16,500). After preparing the above schedule, can you provide the owner with some guidance as to whether: ? to raise Lazy Inn?s summer (June-Aug) rates by 10% across the board. The owner?s guess is that occupancy would go down by 5 percentage points if the rates were raised. What would the impact on cumulative borrowing be if these rates did change? (use scenario manager) Cash Inflows Room Qty Jan-Mar & Dec. Price/Occupancy Rate Apr-May Price/Occupancy Rate June-Aug Price/Occupancy Rate Sept.-Nov. Price/Occupancy Rate 1 king size bed/room 10 $58 / 85% $40 / 50% $58 / 75% $45 / 55% 2 king size beds/room 60 $70 / 80% $48 / 55% $70 / 80% $50 / 58% 2 bedroom (2 kings/room) 20 $80 / 78% $60 / 40% $80 / 88% $64 / 60% 10 executive suites 10 $120 / 95% $90 / 45% $120 / 100% $95 / 65% On your cash budget, be sure to show each room type?s cash flow individually (and total for all rooms by month) ? Vending machines: $200/monthly -> Jan-Mar, Sept.- Dec.; $320/monthly (Apr - Aug) ? Revenue is collected in the month of sale. ? Conference Room rental rate = $150 daily (Jan - May, Sept - Dec); $180 daily (June - Aug.) occupancy rate (25% of days in Jan - May, Sept - Dec; 35% of the days in June - Aug) -- Revenue is collected in the month of the rental. ? For the room revenue, 30% are cash sales; 70% are credit sales. Of the credit sales, 40% of the credit sales are collected in the month of sale while 25% are collected one month later; the balance two months later. Total room revenue for November and December of 2011 was 115,000 and 185,000, respectively. Cash Outflows ? Mortgage ($12,000/monthly) ? Payroll expenses (Jan. - May, Sept - Dec. = $135,000/monthly; June - Aug. = $150,000/monthly ) ? Insurance (quarterly payments of $9,300 on March 1, June 1, Sept. 1, and Dec. 1) ? Utilities (Jan - Mar, Nov. - Dec. = $3,900/month; Apr. - Oct = $2,900/month) ? Professional Services ($1,900/month) ? Bonus to Desk Manager ($400/monthly if monthly room revenues > $180,000 for Jan - May, Sept. - Dec.; > $195,000 for June - Aug.) ? You want to maintain at least $15,000 in your bank account. Any balance less than $15,000 you need to borrow from your line of credit. As usual, use only functions and formulas along with proper formatting in preparing this cash budget. DO NOT have any numbers in formulas. Results should be to the nearest dollar.
Question 2
The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to: decrease the size of the national debt. improve its financial position by investing in relatively safe interest-earning assets. stimulate the economy by increasing the amount of money in circulation. drive up interest rates to cool off inflationary pressures. 2. (1) Which of the following helps to provide for the smooth flow of money between nations? International Monetary Fund Foreign Exchange Bank World Bank International Exchange Center 3. (1) __________ are nonprofit, member-owned financial cooperatives that offer a full variety of banking services such as accepting deposits and making loans. Mutual thrift associations Credit unions Commercial banks Mutual fund companies 4. (1) The ___________ rate represents the interest rate charged by the Fed when loaning funds to member banks. discount prime federal funds reserve 5. (1) Open market committee operations involve: Monitoring the reserve requirement. the buying and selling of bonds. increasing and decreasing interest rates. participating with the IMF. 6. (1) The Federal Reserve fulfills its role as a "lender of last resort" when it loans funds to: small businesses that are unable to obtain loans from other sources. banks during banking emergencies. major corporations that are on the verge of bankruptcy. the federal government when deficits exceed borrowing limits set by Congress. 7. (1) The Fed requires that banks hold a percentage of their deposits in a vault. This percentage is the __________. prime rate working capital requirement discount rate reserve requirement 8. (1) A __________ is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans. credit union Federal Reserve Bank commercial bank consumer finance company 9. (1) The ___________ represents one of the Fed's most powerful monetary policy tools. reserve requirement discount rate margin requirement working capital requirement 10. (1) The __________ primarily provides for the financing of economic development projects throughout the world. International Monetary Fund International Reserve Bank World Bank World Development Authority 11. (1) When the Fed increases the discount rate, banks: must purchase more government securities. must pay a higher rate when they borrow from the Fed. will lower the rate they charge to borrowers. must hold a greater amount of funds in reserve against deposits. 12. (1) When the Fed increases the reserve requirement, banks: must increase the dollar volume of loans they make to customers. must pay more to borrow from the Fed. have fewer funds available for lending. will find their balance sheets temporarily out of balance. 13. (1) Which of the following represents one way the Fed increases the amount of money in circulation? Reduce taxes Raise the discount rate Buy government securities Increase the reserve requirement 14. (1) Which of the following represents the technical name for a checking account? Free deposit Variable annuity Demand deposit Certificate of deposit 15. (1) A __________ represents an agreement by a bank to pay a foreign company a given amount if certain conditions are met. certificate of deposit banker's acceptance callable option letter of credit 16. (1) The organization responsible for conducting monetary policy in the United States is the: Federal Trade Commission. Council of Economic Advisors. Federal Reserve System. Federal Monetary Control Authority. 17. (1) A rapid increase in the money supply may lead to a(n): increase in the rate of inflation. recession. decrease in interest rates. decrease in spending by consumers and businesses. 18. (1) The board of governors of the Federal Reserve System determines: exchange rates. U.S. monetary policy. and monitors the inflows and outflows of gold reserves to ensure a stable money supply. how much money the U.S. will loan to foreign governments. 19. (1) Which of the following represent an independent agency of the U.S. government that insures bank deposits? National Deposit Assurance Cooperative Federal Deposit Insurance Corporation Insurance Corporation of America Deposit Protection Fund 20. (1) A __________ represents an unconditional agreement by a bank to pay a specified amount at a particular time. Certified trade acceptance Banker's acceptance Letter of credit Guaranteed funds agreement 21. (1) Under the Federal Reserve Act of 1913: membership in the Federal Reserve System was made voluntary for all banks. federally chartered banks were required to join the Federal Reserve System. membership in the Federal Reserve System was required of all banks that had deposits of more than $1 million. all banks were required to hold reserves equal to at least 50 percent of their deposits. 22. (1) The banking panic of 1907 and the resulting cash shortage led to the formation of the: Federal Reserve System. Comptroller of the Currency. gold standard for currency, and the establishment of a gold repository at Fort Knox. FDIC.
Question 3
Jennifer Wong and Raymond Leung, both 30, last month bought their dream house in Ajax, Ontario. The purchase price was $350,000 plus addition fees such as taxes, legal fees, administration fees etc., of $10,000. They paid $50,000 cash?part of it from their savings and the rest was a gift from the parents---and borrowed a mortgage of $310,000 from the local bank. They find it very difficult to keep up with the monthly mortgage payments of $1,900, and have approached you for advice. The following is a summary of their financial situation: Cash in chequing account $500 RRSPs $15,000 Five year GIC maturing this month 3,000 Mutual Fund $30,000 Two cars $15,000 Personal Assets $20,000 Jennifer inherited the mutual fund a few years ago when her aunt died. Although it does not pay dividends, they would really like to keep it, but they are willing to sell if it helps their financial situation. Both work for small companies near their home and they have a combined take home pay of $85,200. They do not have any pension plans or other benefits. They plan to have children in the next few years. Their marginal tax rate is about 35%. They have outstanding balances on three credit cards: Visa ($20,000 @18% interest); Master Card ($12,000 @16% interest); and a department store charge card ($4,000 @24% interest). They are currently paying on these cards only the minimum payment of about $1,100 per month. On top of the credit cards, there is still a car loan with an outstanding balance of $5,500 @6% interest, and monthly payment of $450. They spend freely, and live from one pay cheque to another. They find saving money very difficult. They can borrow money at 6% interest for investment purposes. a) What are the most important areas of personal financial management for Raymond and Jennifer?
Question 4
Wild Wood Company's management asks you to prepare its master budget using the following information. The budget is to cover the months of April, May, and June of 2011. Wild Wood Company Balance Sheet March 31, 2011 Assets Liabilities and Equity Cash 50,000 Accounts payable Accounts receivable 175,000 Short-term notes payable Inventory 126,000 Total current liabilities Total current assets 351,000 Long-term note payable Equipment, gross 480,000 Total liabilities Accumulated depreciation (90,000) Common stock Equipment, net 390,000 Retained earnings Total stockholders' equity Total assets 741,000 Total liabilities and equity Additional Information: 1) Sales for March total 10,000 units. Each month's sales are expected to exceed the prior month's results by 5%. The product's selling price is $25 per unit. 2) Company policy calls for a given month's ending inventory to equal 80% of the next month's expected unit sales. The March 31 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit. 3) Sales representatives' commissions are 12.5% of sales and are paid in the month of the sales. The sales manager's monthly salary will be $3,500 in April and $4,000 per month thereafter. 4) Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable. 5) The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale). 6) All merchandise purchases are on credit, and no payables arise from any other transactions. One month's purchases are fully paid in the next month. 7) The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance. 8) Dividends of $100,000 are to be declared and paid in May. 9) No cash payments for income taxes are to be made during the second calendar quarter. Income taxes will be assessed at 35% in the quarter 10) Equipment purchases of $55,000 are scheduled for June. REQUIRED 1) Prepare sales budget, including budgeted sales for July 2) Prepare purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the June 30 budgeted inventory 3) Prepare the operating expense budget 4) Prepare the budgeted Income Statement 5) Prepare expected cash receipts from customers and the expected June 30 balance of accounts receivable 6) Prepare expected cash payments for purchases and the expected June 30 balance of accounts payable 7) Prepare budgeted cash payments for operating expenses 8) Prepare the cash budget 9) Prepare the budgeted Balance Sheet 10) Prepare the budgeted Statement of Cash Flows
Question 5
Show All Work (16-1) Cash Management Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm?s inventory level and increase the firm?s inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up? (16-2) Receivables Investment Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company?s average accounts receivable? (16-3) Cost of Trade Credit What is the nominal and effective cost of trade credit under the credit terms of 3/15, net 30? (16-4) Cost of Trade Credit A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer?s effective cost of trade credit? (16-5) Accounts Payable A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under the credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP?
