Chapter 22. Solution To CH 22 P18 Build A Model: Input Data
Chapter 22. Solution To CH 22 P18 Build A Model: Input Data
Chapter 22. Solution To CH 22 P18 Build A Model: Input Data
Input Data
Collections during month of sale
Collections during month after sale
Collections during second month after sale
Lease payments
Target cash balance
General and administrative salaries
Depreciation charges
Income tax payments (Sep & Dec)
Miscellaneous expenses
New design studio payment
Cash on hand July 1
Minimum cash balance
10%
75%
15%
$9,000
$90,000
$27,000
$36,000
$63,000
$2,700
$180,000
$132,000
$90,000
0%
May
$180,000
$90,000
June
$180,000
$90,000
July
$360,000
$126,000
August September
$540,000
$720,000
$882,000
$306,000
$180,000
$180,000
$360,000
$540,000
$720,000
$360,000
$360,000
$90,000
36000
135000
27000
$198,000
54000
270000
27000
$351,000
72000
405000
54000
$531,000
36000
540000
81000
$657,000
36000
270000
108000
$414,000
9000
270000
54000
$333,000
$126,000
$90,000
$882,000
$126,000
$306,000
$882,000
$234,000
$306,000
$162,000
$234,000
$90,000
$162,000
$90,000
$90,000
January
$180,000
$180,000
$198,000
90,000
27,000
9,000
2,700
$351,000
126,000
27,000
9,000
2,700
$531,000
882,000
27,000
9,000
2,700
63,000
$657,000
306,000
27,000
9,000
2,700
$414,000
234,000
27,000
9,000
2,700
$333,000
162,000
27,000
9,000
2,700
63,000
$128,700
$69,300
$164,700
$186,300
$983,700
$452,700
180,000
$524,700
$132,300
$272,700
$141,300
$263,700
$69,300
$132,000
$201,300
$90,000
$201,300
$387,600
$90,000
$387,600
$651,000
$90,000
$65,100
$67,200
$90,000
$67,200
$208,500
$90,000
$208,500
$277,800
$90,000
$111,300
$297,600
$155,100
$22,800
$118,500
$187,800
$155,100
b. How much must Bowers borrow each month to maintain the target cash balance?
Answer. Just look at the "Cumulative surplus" line at the bottom of the cash budget.
c. Would the cash budget be accurate if inflows came in all during the month but outflows were bunched
early in the month?
No it would not be accurate. A daily cash budget would be necessary because not all payments would be noted.
d. If the company produces on a seasonal basis. How would this affect the current ratio and the debt ratio?
Before the major seasonal movement, the company will not have many assets and little debt. As it begins to make more, it will begin to borrow more in order to finance.
e. If its customers began to pay late, this would slow down collections and thus increase the required loan amount. Also, if
sales dropped off, this would have an effect on the required loan. Do a sensitivity analysis that shows the effects of these two
factors on the max loan requirement. Assume the purchases of labor and raw material also vary by the sales adjustment factor.
Answer: The "Sales adjustment factor" can be used to cause sales to vary from the base levels. Similarly, we
can change the percentage of late paying customers. Here is the relevant data table:
Change
in Sales
$155,100
-100%
-75%
-50%
-25%
0%
25%
50%
75%
100%
15%
75%
90%
$ 496,200
$ 318,450
$ 148,800
$ 496,200
$ 325,200
$ 189,300
$ 496,200
$ 331,950
$ 229,800
$ 496,200
$ 338,700
$ 270,300
$ 496,200
$ 345,450
$ 310,800
$ 496,200
$ 353,550
$ 351,300
$ 496,200
$ 473,800
$ 391,800
$ 110,100
$ 150,600
$ 191,100
$ 231,600
$ 288,300
$ 349,050
$ 409,800
$ 101,100
$ 92,100
$ 83,100
$ 741,000
$ 155,100
$ 159,600
$ 164,100
$ 168,600
$ 209,100
$ 227,100
$ 245,100
$ 263,100
$ 263,100
$ 2,946,000
$ 326,100
$ 357,600
$ 317,100
$ 362,100
$ 407,100
$ 452,100
$ 371,100
$ 429,600
$ 488,100
$ 546,600
$ 427,800
$ 497,100
$ 569,100
$ 641,100
$ 65,100
$ 173,100
$ 281,000
$ 389,100
$ 497,100
$ 605,100
$ 713,100