Question

Oleans, Inc. projects sales to be $100,000; $90,000; $95,000 during the months of August, September, and October respectively. Salaries are projected to be $12,000 plus 5% of sales. Purchases are 50% of sales for the month and paid in the month of purchase. A tax payment of $60,000 and an equipment purchase of $20,000 will be made in September. Transactions are for cash, and a ($20,000) cash balance (yes, this is a negative ($20,000) starts the month of August. The firm maintains a minimum target end of month balance of $6,000. There is no limit as to how high the cash balance can be.

Calculate the ending cash balance after any deficit is financed to achieve the target level for each of the three months.

Answer 1

	August	September	October
Beginning cash balance	($20000)	$13000	$6000
Sales	$100000	$90000	$95000
Total cash available	$80000	$103000	$101000
Less: Payments
Salaries	$17000	$16500	$16750
Purchases (50% of sales)	$50000	$45000	$47500
Tax payment	-------	$60000	------
Equipment purchase	-------	$20000	------
Total cash payments	$67000	$141500	$64250
Cash surplus (deficit)	$13000	($38500)	$36750
Required ending balance	$6000	$6000	$6000
Finance raised (repayment)	--------	$44500	($30750)
Ending cash balance	$13000	$6000	$6000

Working Note;

1. Salaries is calculated as follow;

For August:

$12000 + ($100000 * 0.05) = $17000

For September:

$12000 + ($90000 * 0.05) = $16500

For October:

$12000 + ($95000 * 0.05) = $16750