Cash flow forecasts - numerical questions
The Computer Business
Power plc sells computers to the general public through the Internet. They buy their stock for $600 per computer and sell them for $1,000 each. The history of the firm for its first 10 weeks of trading is shown below.
When they started the business the three shareholders put in $100,000 in cash.
Week 1 - they rent a serviced office for $300 per week, and pay this in cash. This rental is then paid weekly for the remainder of the 10 weeks.
Week 2 - they purchased a batch of 100 computers at a price of $600 each, paying cash with order. The pay an insurance policy for 6 months. It costs them $650 cash.
Week 3 - they sell 50 computers for cash, and 20 on two weeks credit.
Week 4 - they purchase another batch of computers. They now buy 200 units at a special price of $500 each for cash. They sell 50 units on three weeks credit, and 20 for cash.
Week 5 - they sell 30 units for cash and 50 on three weeks credit.
Week 6 - they buy another 200 units for $500 cash. They also pay wages of $2,500 cash. No sales this week.
Week 7 - they sell 80 units on three weeks credit.
Week 8 - they buy another 200 units on a very special deal. Cash purchase at $450 per unit. They sell 50 for cash.
Week 9 - they sell 60 on three weeks credit and 30 for cash.
Week 10 - they buy 200 units on one-month credit. They sell 40 units for cash and 20 on three weeks credit.
Prepare a chart showing the purchases, sales and stocks of the firm for the trading period of 10 weeks.
Prepare a cash flow statement for the firm covering these first 10 weeks trading.
Prepare a profit statement, on a week-by-week basis, for the same 10-week period.
Mike Dines has recently begun in business running his own market stall. He wishes to expand and he would need a bank loan. The bank has requested that Mike produces a cash budget for the forthcoming period. He has obtained the following information relating to the next six months. This information is to be used to construct a cash flow forecast for the six months ending 31 December.
- Purchases and sales are expected to be as follows:
|All in $s||Jul||Aug||Sep||Oct||Nov||Dec|
- Purchases are paid for one month in arrears
- All sales are for cash
- Trade creditors as at 30 June amounted to $830
- A new stall is expected to be purchased in September which would cost $750. The old stall would be traded in at a value of $150.
- Personal drawings are $500 per month
- Rent of the market stall patch amounts to $180 per month but will rise to $270 in October
- On 1 July the bank balance was $750 overdrawn
- Prepare a cash budget for the six months ending 31 December.
- Identify three actions that Mike could take to secure this bank loan.