Of Redbird’s sales, 20% is for cash, another 60% is collected in the month following sale, and 20 percent is collected in the second month following sale. November and December sales for 20X1 were $220,000 and $175,000, respectively.
Redbird purchases its raw materials two months in advance of its sales equal to 70% of its final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February, and payment is made in March.
In addition, Redbird pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $23,000 are made each quarter beginning in March.
The company’s cash balance at December 31, 20X1, was $22,000; a minimum balance of $20,000 must be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the beginning of May.
January $100,000 May $275,000
February $110,000 June $250,000
March $130,000 July $235,000
April $250,000 August $160,000
Prepare a cash budget for Redbird covering the first seven months of 2010.
They have $100,000 in notes payable due in July that must be repaid, or an extension renegotiated. Will they be able to pay off the notes?
What are the external funding needs, or how much can they pay back?