Cash budget and Interest

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(Cash budget) The Carmel Corporation’s projected sales for the first eight months of 2004 are as follows:

January $100,000

February 110,000

March 130,000

April 250,000

May $275,000

June 250,000

July 235,000

August 160,000

Of Carmel’s sales, 20 percent is for cash, another 60 percent is collected in the month following sale, and 20 percent is collected in the second month following sale. November and December sales for 2003 were $220,000 and $175,000, respectively. Carmel purchases its raw materials two months in advance of its sales equal to 70 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Carmel pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $23,000 are made each quarter beginning in March. The company’s cash balance at December 31, 2003, was $22,000; a minimum balance of $20,000 must

be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 × 1/12 × $60,500) owed for April and paid at the beginning of May

 a. Prepare a cash budget for Carmel covering the first seven months of 2004.

b. Carmel has $250,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?

(Compound interest)

To what amount will the following investments accumulate? a. $4,000 invested for 11 years at 9 percent compounded annually

b. $8,000 invested for 10 years at 8 percent compounded annually

c. $800 invested for 12 years at 12 percent compounded annually

d. $21,000 invested for 6 years at 5 percent compounded annually

5-2B. (Compound value solving for n) How many years will the following take?

a. $550 to grow to $1,043.90 if invested at 6 percent compounded annually

b. $40 to grow to $88.44 if invested at 12 percent compounded annually

c. $110 to grow to $614.79 if invested at 24 percent compounded annually

d. $60 to grow to $78.30 if invested at 3 percent compounded annually

5-3B. (Compound value solving for i) At what annual rate would the following have to be invested?

a. $550 to grow to $1,898.60 in 13 years

b. $275 to grow to $406.18 in 8 years

c. $60 to grow to $279.66 in 20 years

d. $180 to grow to $486.00 in 6 years

5-4B. (Present value) What is the present value of the following future amounts?

a. $800 to be received 10 years from now discounted back to the present at 10 percent

b. $400 to be received 6 years from now discounted back to the present at 6 percent

c. $1,000 to be received 8 years from now discounted back to the present at 5 percent

d. $900 to be received 9 years from now discounted back to the present at 20 percent