fisv 2000 cash budget

finalexam.xlsx

Capital Budgeting

CAPITAL BUDGETING PROBLEM
1. FACTS: Your company is looking to expand its product line and it production capacity. The Product Line Project has an estimated initial cost of $900,000; the Production Capacity Project has an estimated initial cost of $3,750,000. The company can only fund one of the projects and uses a discount rate of 12% for projects like this. REQUIRED: Below are the estimated cash inflows and outflows for each project for three years. A. Calculate the net present values of the two projects and determine which, if any, project should be accepted? B. Assume a required payback period of 3 years. Calculate the payback period; is either project accepted based on payback?
Product Line Project				Production Capacity Project
Year	Cash Inflows	Cash Outflows	Net Cash Flows	Year	Cash Inflows	Cash Outflows	Net Cash Flows
0				0
1	$ 600,000	$ 300,000		1	$ 1,250,000	$ 800,000
2	$ 800,000	$ 200,000		2	$ 3,000,000	$ 700,000
3	$ 850,000	$ 50,000		3	$ 3,250,000	$ 600,000
Net Present Value of Project				Net Present Value of Project
Payback Period of Project				Payback Period of Project
Provide a response to the questions of which project should be accepted.

CASH BUDGET						2. INSTRUCTIONS: Pretend it is January 1. Set up a cash budget for the months of April - June using the following information and concluding with the projected ending cash balance.
	Month	Month	Month	Month	Month
Forecasted Sales						* Beginning cash balance in April is expected to be $10,000
Credit [Receivable] Sales						* Expected Sales: January: $600,000; February: $800,000; March : $900,000; April: $800,000; May: $1,200,000; June: $1,300,000
Credit Card Sales
						* 80% of each month's sales are credit (via accounts receivable) and the remaining 20% are credit card sales which incur a 3.5% fee
Cash Receipts Schedule
						* 30% of a month's receivable sales are collected in the month following the sale and 70% are collected in the second month following the sale.
						* Cash payments for expenses are expected to include the following:
						Variable Costs: Materials: 25% of prior month's sales; Payroll: 30% of current month's sales; Selling Expenses: 15% of prior month's sales
Total cash receipts
						Fixed costs: G&A expenses: $50,000; Operating expenses: $60,000; Income tax payments: $10,000
Cash Payments Budget						Capex: In April, equipment needs to be purchased with a cost of $150,000
						* There is an available line of credit with no balance currently owed.
Total cash payments
Cash Budget
Cash Receipts
Cash payments
Net cash flow
Beginning Cash Bal.
Cummulative [Available] Cash Balance
LOC Borrowings (Payments)
Ending cash balance