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Cash is King
QUESTION
Good cash management is an essential job of the financial manager! You own a small auto sales business called King Kars. You stock up on inventory in February, April, June, and September. Your annual cash budget indicates that your MONTHLY NET CASH for the year will be the following:
JAN $5,000
FEB -$30,000
MAR $20,000
APRIL -$35,000
MAY $25,000
JUNE -$10,000
JULY $25,000
AUG $25,000
SEPT -$30,000
OCT $15,000
NOV $15,000
DEC $25,000You begin the year with a cash balance of $50,000, and the minimum cash balance desired must be $50,000 every month. Prepare a cash flow summary and external financing summary as noted in the Excel spreadsheet assigned to this submission.
Do you believe that the company needs outside financing?
What is the minimum line of credit to request from a lender?
Do you think you are a good candidate for the line of credit? Why?
Please submit the Excel template below, saved under your name, with the columns and rows completed with the cash flows. Also in this template, you must include the answers to questions 2 and 3 in the assignment.
Use template uploaded .The use of 1 scholarly source (e.g., textbook, article from the CEC Library) is required. https://aiu.vitalsource.com/#/books/9781259357534/epubcfi/6/36%5B%3Bvnd.vst.idref%3Dchapter-006%5D!/4/2/2%5Bpage158%5D%400:0
https://aiu.vitalsource.com/#/books/9781259357534/epubcfi/6/38%5B%3Bvnd.vst.idref%3Dchapter-007%5D!/4/2%400:0
https://aiu.vitalsource.com/#/books/9781259357534/cfi/6/40[;vnd.vst.idref=chapter-008]
| Subject | Article Writing | Pages | 12 | Style | APA |
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Answer
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FINA310 UNIT 5 INDIVIDUAL PROJECT: STUDENT TEMPLATE |
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KING KARS |
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JANUARY |
FEBRUARY |
MARCH |
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GIVEN: |
MONTHLY NET CASH GAIN OR LOSS |
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$ 5,000 |
$ (30,000) |
$ 20,000 |
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JANUARY |
FEBRUARY |
MARCH |
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CASH FLOW SUMMARY |
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1. Cash balance at start of month |
$50,000 |
$55,000 |
$50,000 |
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2. Net cash gain (loss) during month |
$ 5,000 |
$ (30,000) |
$ 20,000 |
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3. Cash bal. at end of month (before financing) |
$55,000 |
$25,000 |
$70,000 |
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4. Minimum cash balance desired |
$50,000 |
$50,000 |
$50,000 |
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5. Surplus cash (OR) Deficit cash (Line 3 – Line 4) |
$5,000 |
-$25,000 |
$20,000 |
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EXTERNAL FINANCING SUMMARY |
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6. External financing balance - start of month |
$0 |
$0 |
$0 |
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7. New financing req'd (negative of Line 5) (if deficit!) |
$0 |
$25,000 |
$0 |
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8. Financing repayments (if surplus!) |
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$0 |
$0 |
$20,000 |
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9. Ext financing balance – end of month |
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$55,000 |
$50,000 |
$70,000 |
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10.Cash bal. at end of mo (Line3 + Line7 + Line8) |
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$55,000 |
$50,000 |
$90,000 |
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a) |
Do you believe that the company needs outside financing? |
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Yes. The company will need $ 40,000 to finance the deficits of $ 25,000 in Feruary and $ 15,000 in April |
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b) |
What is the minimum line of credit to request from a lender? |
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The minimum line of credit needed to request from the lender is $ 40,000 |
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c) |
Do you think you are a good candidate for the line of credit? Why? |
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Yes we are a good candidate for the line of credit. This is due to the fact that, we will start payment as from March and finish payment by May. After the payment, we will having a positive balance of $ 75,000 |
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According to Smith and Pennathur (2019)), the ability to repay credit is a kety determinant in ascertaining the eligibility for credit. Since we will be able to repay as soon as 2 months, and still have surplus cas, it possible to conclude that we are eligible. |
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References
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Smith, D. D., & Pennathur, A. K. (2019). Signaling Versus Free Cash Flow Theory: What Does Earnings Management Reveal About Dividend Initiation? Journal of Accounting, Auditing & Finance, 34(2), 284–308. |