Answered: Grenoble Enterprises had sales of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 4P

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Question

Grenoble Enterprises had sales of $50,000 in March and $60,300 in April. Forecast sales for May, June, and July are $69,700, $80,300, and $99,900, respectively. The firm has a cash balance of $4,800 on May 1 and wishes to maintain a minimum cash balance of $4,800. Given the following data, prepare and interpret a cash budget for the months of May, June, and July.

(1) The firm makes 16% of sales for cash, 60% are collected in the next month, and the remaining 24% are collected in the second month following sale.

(2) The firm receives other income of $1,500 per month.

(3) The firm's actual or expected purchases, all made for cash, are $49,700, $69,700, and $79,800 for the months of May through July, respectively.

(4) Rent is $2,500 per month.

(5) Wages and salaries are 8% of the previous month's sales.

(6) Cash dividends of $3,400 will be paid in June.

(7) Payment of principal and interest of $3,900 is due in June.

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