3.

 If the sales growth rate is 11 percent, the projected sales for next year is:
Q1 Q2 Q3 Q4
$1,223,220 $1,266,51
Sales $1,248,750 $1,179,930
($1,102,000 x 1.11) 0
We have 57-day collection period and 53-day payables period so the Collections period and the Payables
period each quarter will be

 Collections = (90-57)/90 current sales + 57/90 old sales= 33/90 current

sales + 57/90 old sales.
 Payables = (90-53)/90 current orders + 53/90 old orders =37/90 current
orders + 53/90 old orders
 The cash flows for each quarter will be:
Cash Flow
Q1 Q2 Q3 Q4
Collection from $607,500 $774,706 $802,123 $790,875
previous quarter ($675,000 x 90%) ($1,223,220 x 57/90) ($1,226,510 x 57/90)

Collection from $448,514 $464,387 $457,875 $432,641

current quarter [$1,223,220 x [$1,266,510 x ($1,248,750 x (90-
(90-57)/90] (90-57)/90] 57)/90]
Payment to -$360,170.33 -$372,916.83 -$367,687.5 -$347,423.83
suppliers for (1/2 x 1,223,220 x (1/2 x 1,266,510 x (1/2 x 1,248,750 x
53/90) 53/90) 53/90)
previous quarter
(Payments)
Payment to -$260,338,17 -$256,687.5 -$242,541.17 -$279,098.03
suppliers for [1/2 x 1,266,510 x (90- [1/2 x 1,248,750 x (90- [1/2 x 1,179,930 x
53)/90] 53)/90] (90-53)/90]
current quarter
(Purchases)
Wages, taxes and -$305,805 -$316,627.5 -$312,187.5 -$294,982.5
other expenses (25% x 1,223,220) (25% x 1,266,510) (25% x 1,248,750)

Dividends and -$185,000 -$185,000 -$185,000 -$185,000

Interest
Outlay -$390,000
Net cash flow -$55,299.50 $107,861.17 -$237,418.17 $117,011.64

Note:
 - Accounts Receivable balance at the beginning: $675,000 with 10%
will never be collected => Beginning Receivables = $607,500
- Total sources of cash = Collection from previous quarter + Collection
from current quarter
- Payments of accounts payable = Payment to suppliers for previous
quarter + Payment to suppliers for current quarter
- Total uses of cash = Payments of accounts payable + Wages, taxes
and other expenses + Dividends and Interest + Outlay
- Net cash flow = Total sources of cash - Total uses of cash

Cash balance
Q1 Q2 Q3 Q4
Beginning cash balance $210,000.00 $154,700.5 $262,561.67 $25,143.5
Net cash flow -55,229.5 107,861.17 -237,418.17 117,011.64
Ending cash balance $154,700.5 $262,561.67 $25,143.5 $142,155.14
Minimum cash balance 135,000 135,000 135,000 135,000
Cumulative surplus (deficit) $19,700.5 $127,561.67 -$109,856.5 $7,155.14

Note:
Beginning cash balance Q2 = Ending cash balance Q1
Ending cash balance = Beginning cash balance - Net cash flow
Cumulative surplus (deficit) = Ending cash balance - Minimum cash balance

The short-term financial plan is:

Short-Term Financial Plan
Q1 Q2 Q3 Q4
Target cash $135,000 $135,000 $135,000 $135,000
balance
Net cash inflow -55,299.5 107,861.17 -237,418.17 117,011.64
New short-term 0 -$108,236.17 0 -$63,106.63
investments ($107,861.17 + ($117,011.64 –
375) 639.19 –
53,265.82)
Income on short- $375 $375 $916.18 0
term (0.5% x (0.5% x (0.5% x
$75,000) $75,000) $183,236.17)
investments
Short-term $54,924.5 0 $183,236.17 0
investment sold (-$55,299.5
+375)
New short-term 0 0 $53,265.82 0
borrowing ($237,418.17-
916.18-183,236.17)
Interest on 0 0 0 -$639.19
short-term (1.2% x
$53,265.82)
borrowing
Short-term 0 0 0 -$53,265.82
borrowing
repaid
Ending cash $135,000 $135,000 $135,000 $135,000
balance
Minimum cash -135,000 -135,000 -135,000 -135,000
balance
Cumulative $0 $0 $0 $0
surplus
(deficit)

Beginning $75,000 $75,000 $183,236.17 $0

short-term ($210,000 -
135,000)
investments
Ending short- $75,000 $183,236.17 $0 $63,106.63
term ($75,000 +
108,236.17)
investments
Beginning $0 $0 $0 $53,265.82
short-term debt
Ending short- $0 $0 $53,265.82 $0
term debt
Interest paid (received) for each quarter and the net cash cost:
Q1: Excess funds at the start of quarter of ($210,000 - $135,000 = $75,000)
invested for 1 quarter earn 0.5% x $75,000 = $375 in income.
Q2: Excess funds of $75,000 invested for 1 quarter earn 0.5% x $75,000 = $375 in
income.
 Q3: Excess funds of $183,236.17 invested for 1 quarter earn 0.5% x $183,236.17 =
$916.18 in income.
Q4: Shortage funds of $53,265.82 borrowed for 1 quarter cost 1.2% x $53,265.82
= $639.19 in interest.

Net cash cost

Q1 $375
Q2 375
Q3 916.18
Q4 639.19
Cash generated by short-term financing $1,026.99

 If the sales growth rate is 5 percent, the projected sales for next year is:
Q1 Q2 Q3 Q4
$1,157,100 $1,198,05
Sales ($1,102,000 x 1.05) $1,181,250 $1,116,150
0
We have 57-day collection period and 53-day payables period so the Collections
period and the Payables period each quarter will be
 Collections = (90-57)/90 current sales + 57/90 old sales= 33/90 current
sales + 57/90 old sales.
 Payables = (90-53)/90 current orders + 53/90 old orders =37/90 current
orders + 53/90 old orders
 The cash flows for each quarter will be:
Cash Flow
Q1 Q2 Q3 Q4
Collection from $607,500 $732,830 $758,765 $748,125
previous quarter ($675,000 x 90%) ($1,157,100 x 57/90)

Collection from $424,270 $439,285 $433,125 $409,255

current quarter [$1,157,100 x [$1,198,050 x
(90-57)/90] (90-57)/90]
Payment to -$340,701.67 -$352,759.17 -$347,812.5 -$328,644.17
(1/2 x 1,157,100 x (1/2 x 1,198,050 x
suppliers for 53/90) 53/90)
previous quarter
(Payments)
Payment to -$246,265.83 -$242,812.5 -$229,430.83 -$249,740.75
suppliers for [1/2 x 1,198,050 x (90- [1/2 x 1,181,250 x (90-
53)/90] 53)/90]
current quarter
(Purchases)
Wages, taxes and -$289,275 -$299,512.5 -$295,312.5 -$279,037.5
other expenses (25% x 1,157,100) (25% x 1,198,050)

Dividends and -$185,000 -$185,000 -$185,000 -$185,000

Interest
Outlay -$390,000
Net cash flow -$29,472.5 $92,030.83 -$255,655.83 $114,957.58

Note:
- Accounts Receivable balance at the beginning: $675,000 with 10%
will never be collected => Beginning Receivables = $607,500
- Total sources of cash = Collection from previous quarter + Collection
from current quarter
- Payments of accounts payable = Payment to suppliers for previous
quarter + Payment to suppliers for current quarter
- Total uses of cash = Payments of accounts payable + Wages, taxes
and other expenses + Dividends and Interest + Outlay
- Net cash flow = Total sources of cash - Total uses of cash

Cash balance
Q1 Q2 Q3 Q4
Beginning cash balance $210,000.00 $180,527.5 $272,558.33 $16,892.5
Net cash flow -29,472.5 92,030.83 -255,665.83 114,957.58
Ending cash balance $180,527.5 $272,559.33 $16,892.5 $131,850.08
Minimum cash balance 135,000 135,000 135,000 135,000
Cumulative surplus (deficit) $45,527.5 $137,558.33 -$118,107.5 -$3,149.92

Note:
- Beginning cash balance Q2 = Ending cash balance Q1
 - Ending cash balance = Beginning cash balance - Net cash flow
- Cumulative surplus (deficit) = Ending cash balance - Minimum cash
balance

 The short-term financial plan is:

Short-Term Financial Plan
Q1 Q2 Q3 Q4
Target cash $135,000 $135,000 $135,000 $135,000
balance
Net cash inflow -29,472.5 92,030.83 -255,665.83 114,957.58
New short-term 0 -$92,405.83 0 -$26,485.54
investments ($92,030.83 + ($114,957.58 –
375) 1,049.08 –
87,422.97)
Income on short- $375 $375 $837.03 0
term investments (0.5% x (0.5% x (0.5% x
$75,000) $75,000) $167,405.83)
Short-term $29,097.5 0 $167,405.83 0
investment sold (-$29,472.5
+375)
New short-term 0 0 $87,422.97 0
borrowing ($255,655.83-
837.03-167,405.83)
Interest on short- 0 0 0 -$1,049.08
term borrowing (1.2% x
$87,422.97)
Short-term 0 0 0 -$87,422.97
borrowing
repaid
Ending cash $135,000 $135,000 $135,000 $135,000
balance
Minimum cash -135,000 -135,000 -135,000 -135,000
balance
Cumulative $0 $0 $0 $0
surplus
(deficit)

Beginning $75,000 $75,000 $167,405.83 $0

short-term ($210,000 -
investments 135,000)

Ending short- $75,000 $167,405.83 $0 $26,485.54

term ($75,000 +
92,405.83)
investments
Beginning $0 $0 $0 $87,422.97
short-term debt
Ending short- $0 $0 $87,422.97 $0
term debt
Interest paid (received) for each quarter and the net cash cost:
Q1: Excess funds at the start of quarter of ($210,000 - $135,000 = $75,000)
invested for 1 quarter earn 0.5% x $75,000 = $375 in income.
Q2: Excess funds of $75,000 invested for 1 quarter earn 0.5% x $75,000 = $375 in
income.
Q3: Excess funds of $167,405.83 invested for 1 quarter earn 0.5% x $167,405.83 =
$837.03 in income.
Q4: Shortage funds of $87,422.97borrowed for 1 quarter cost 1.2% x $87,422.97=
$1,049.08 in interest.

Net cash cost

Q1 $375
Q2 375
Q3 837.03
Q4 -1,049.08
Cash generated by short-term financing $537,95