Rancho, Inc. forecasts the following sales for the second quarter of 2020, as well as actual March sales: March (actual) April May June 2nd Q. Total $3,000 $4,000 $5,000 $6,000 $15,000 In addition: The company makes 60% cash sales and 40% credit sales. It collects all credit sales in the month after the sale. The firm budgets $4,400 for monthly operating expenses. That amount includes $400 for depreciation. The firm pays all of its cash-based expenses in the month incurred. Rancho, Inc. had $100 of cash at March 31, 2020, and it must maintain a minimum $500 cash balance at the end of every month to ensure liquidity. The company has a line of credit with its bank that allows borrowing in $100 increments at 12% interest. All borrowing takes place at the beginning of the month in which the company requires cash. The company must repay principal in hundred dollar increments. The credit facility requires Rancho, Inc. to repay all accrued interest to date whenever it repays principal. Principal repayments and interest payments occur at the end of a month (funds permitting). Required: Develop monthly and quarterly short-term financing budgets for the second quarter of 2020 using the templates provided in the Excel spreadsheet titled Cash Flow Worksheet and Short-Term Financing Budget. Cash Flow Worksheet April May June 2nd Q Cash sales Credit sales collected Cash receipts Cash monthly payments Cash inflow (outflow) Short-Term Financing Budget April May June 2nd Q Beginning cash balance Net cash flow Available cash Borrowing needed Repayment of principal Payment of interest Net cash balance

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter15: Managing Short-term Assets

Section: Chapter Questions

Problem 1PROB

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Problem 5-2

Rancho, Inc. forecasts the following sales for the second quarter of 2020, as well as actual March sales:

March (actual)	April	May	June	2^nd Q. Total
$3,000	$4,000	$5,000	$6,000	$15,000

In addition:

The company makes 60% cash sales and 40% credit sales.
It collects all credit sales in the month after the sale.
The firm budgets $4,400 for monthly operating expenses. That amount includes $400 for depreciation.
The firm pays all of its cash-based expenses in the month incurred.
Rancho, Inc. had $100 of cash at March 31, 2020, and it must maintain a minimum $500 cash balance at the end of every month to ensure liquidity.
The company has a line of credit with its bank that allows borrowing in $100 increments at 12% interest. All borrowing takes place at the beginning of the month in which the company requires cash.
The company must repay principal in hundred dollar increments.
The credit facility requires Rancho, Inc. to repay all accrued interest to date whenever it repays principal.
Principal repayments and interest payments occur at the end of a month (funds permitting).

Required:

Develop monthly and quarterly short-term financing budgets for the second quarter of 2020 using the templates provided in the Excel spreadsheet titled Cash Flow Worksheet and Short-Term Financing Budget.

Cash Flow Worksheet

	April	May	June	2^nd Q
Cash sales
Credit sales collected
Cash receipts
Cash monthly payments
Cash inflow (outflow)

Short-Term Financing Budget

	April	May	June	2^nd Q
Beginning cash balance
Net cash flow
Available cash
Borrowing needed
Repayment of principal
Payment of interest
Net cash balance

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