The Rhodium division has prepared its budget for 2020 and its working capital requirements are summarised below: MONTH Rand January 8 450 000February 9 150 000 March 6 250 000 April 3 750 000 May 2 850 000 June 10 500 000 July 2 925 000 August 10 625 000 September 5 200 000 October 4 600 000November 7 300 000 December 8 100 000 The division is deciding whether to adopt an aggressive funding strategy or a conservative funding strategy.Short-term funds can be borrowed at a rate of 16,25% per annum and long-term funds at a rate of 19% per annum. REQUIRED: Q.3.1 Determine thepermanent component of the division's monthly working capital funding requirements Q.3.2 Determine the seasonal component and average of thedivision's monthly working capital funding requirements. Round off your final answer to tne nearest Rand. Q.3.3 Calculate the total average monthlycost if the Rhodium division adopts an aggressive funding strategy. Round off all calculations to the nearest Rand

Working capital is the amount which is used to finance the difference between the disbursements and…

Answered: The Rhodium division has prepared its…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 15P

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Review the completed master budget and answer the following questions: Is Ranger Industries expecting to earn a profit during the next quarter? If so, how much? Does the company need to borrow cash during the quarter? Can it make any repayments? Explain. (Carefully review rows 74 through 80.)
Carmichael Corporation is in the process of preparing next years budget. The pro forma income statement for the current year is as follows: Required: 1. What is the break-even sales revenue (rounded to the nearest dollar) for Carmichael Corporation for the current year? 2. For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a 60,000 increase in fixed expenses. What is the break-even point in dollars for next year? (CMA adapted)
CASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2019 and 2020: Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depreciation charges are 36,000 a month. Miscellaneous expenses are 2,700 a month. Income tax payments of 63,000 are due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2019. b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1/30 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal, and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain.
Before the year began, the following static budget was developed for the estimated sales of 50,000. Sales are higher than expected and management needs to revise its budget. Prepare a flexible budget for 100,000 and 110,000 units of sales.
Relevant data from the operating budget of The Framers are: Other data: Capital assets were sold in quarter 1 and $8,000 was collected in quarter 1 and $500 collected in quarter 2. Dividends of $500 will be paid in May The beginning cash balance was $50,000 and a required minimum cash balance is $10,000. Prepare a cash budget for the first two quarters of the year.
A. Discuss the purpose of the cash budget. B. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
The Rhodium division has prepared its budget for 2020 and its working capital requirements are summarised below: MONTH Rand January 8 450 000 February 9 150 000 March 6 250 000 April 3 750 000 May 2 850 000 June 10 500 000 July 2 925 000 August 10 625 000 September 5 200 000 October 4 600 000 November 7 300 000 December 8 100 000 The division is deciding whether to adopt an aggressive funding strategy or a conservative funding strategy. Short‐term funds can be borrowed at a rate of 16,25% per annum and long‐term funds at a rate of 19% per annum. REQUIRED: Q.3.1 Determine the permanent component of the division’s monthly working capital funding requirements.(1) Q.3.2 Determine the seasonal component and average of the division’s monthly working capital funding requirements. Round off your final answer to the nearest Rand. Q.3.3 Calculate the total average monthly cost if the Rhodium division adopts an aggressive funding strategy. Round off all calculations to the nearest Rand.
The Rhodium division has prepared its budget for 2020 and its working capital requirements are summarised below: MONTH Rand January 8 450 000 February 9 150 000 March 6 250 000 April 3 750 000 May 2 850 000 June 10 500 000 July 2 925 000 August 10 625 000 September 5 200 000 October 4 600 000 November 7 300 000 December 8 100 000 The division is deciding whether to adopt an aggressive funding strategy or a conservative funding strategy. Short‐term funds can be borrowed at a rate of 16,25% per annum and long‐term funds at a rate of 19% per annum Determine the permanent component of the division’s monthly working capital funding requirements.
The directors of Royal Ltd have asked you, as a recently employed assistant management accountant, to prepare and review their cash budget. In addition, Royal Ltd requires you to evaluate the different funding options for its expansion plans. Estimated sales and purchases for each of the nine months to September are given below: Jan £,000 Feb £,000 Mar £,000 April £,000 May £,000 June £,000 July £,000 Aug £,000 Sept £,000 Credit sales 2,500 4,000 3,000 16,000 11,350 18,000 14,250 7,500 12,500 Cash sales 550 650 900 900 220 100 300 550 800 Credit purchases 5,000 3,200 6,800 7,000 3,700 4,300 2,200 1,000 5,100 Trade Receivables: Credit sales are to be collected two months after the date they have been sold. Trade Payables: Credit purchases are to be paid one month after the date they have been purchased. Borrowings: The terms of a 5-year loan are coming to an end and Hamble Ltd are due…
Osaka Manufactures has the following budgeted cash stream for four quarters of an upcoming year i.e. 2021. The Beginning cash balance is $ 42,500 Management plans to spend $130,000 during the year on equipment purchases $50,000 in the first quarter, $40,000 in the second quarter, $20,000 in the third quarter and $20,000 in the fourth quarter Board of directors has approved cash dividends of $8,000 per quarter Collection from the customers are $ 230,000, $ 480,000, $740,000 & $520,000 respectively in four quarters Direct Material Payments are $49,500, $72,300, $100,050 and $79,350 respectively over the four quarters Direct labor Payouts are $84,000, $192,000, $216,000 and $114,000 respectively over the four quarters MOH payment are $68,000, $96,800, $103,200 and $76,000 respectively Selling and admin expenses are $107,000, $143,000, $ 161,000 and $125,000 You are required to highlight excess/deficiency of cash available over disbursement for each of four quarters and suitable…
SUPERIOR Company Limited is considering the following projects for inclusion in its capital budget for year 2021.The projects have equal risks and the capital outlay required is as follows: Project Investment required Project Investment Requirement Return $000 $000 1 24,000 5520 2 9600 3072 3 7000 980 4 4800 864 5 3200 640 6 1400 392 As the Divisional Manager, you are to decide which of the projects to accept. The company has a cost of capital of 15% with $60million available to the division for investment purposes.Required: Compute the total investment, total return on capital invested and residual income on each of the following assumptions, indicating the preferred project: The Company has a rule that all projects promising at least 20% or more should be accepted. The divisional manager is evaluated on his ability to maximise his return on capital investment. The divisional manager is expected to maximise residual income as computed by using…
Elliott Industries, a wholesale company, is considering whether to open a new distribution center. The center would open January 1, 2021. To make the decision, the planning committee requires a master budget for the center’s first quarter of operation (January, February, and March of 2022). Required You are to construct the first quarter master budget based on the following expectations: January sales are estimated to be $400,000 of which $100,000 will be cash sales and $300,000 will be on credit. The company expects sales to grow 10% per month for the first few months of operation. Prepare a sales budget for the first quarter. The company expects to collect 100% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts for the first quarter. Cost of goods sold will be 60% of sales. Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold. Assume Elliott expects April…

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