Chapter 13 Dividend Policy and Internal Financing

35) Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:

Jan. $ 50,000 April $180,000

Feb. $ 60,000 May $240,000

Mar. $100,000 June $240,000

Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2012 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). The firm has no short-term borrowing as of March 1st, 2012. Assume that the interest rate on short-term borrowing is 1% per month. What was Rawhides' projected loss for March?

A) $184,000

B) $110,000

C) $84,000

D) none of the above

36) Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:

Jan. $ 50,000 April $180,000

Feb. $ 60,000 May $240,000

Mar. $100,000 June $240,000

Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2012 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2012. Assume that the interest rate on short-term borrowing is 1% per month. How much short term financing is needed by March 30, 2012?

A) $110,000

B) $15,000

C) $70,000

D) $85,000

37) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.

Jan. $300,000 April $350,000

Feb. $350,000 May $500,000

Mar. $475,000 June $400,000

20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected total disbursements for April?

A) $422,918

B) $435,686

C) $398,833

D) $375,655

38) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.

Jan. $300,000 April $350,000

Feb. $350,000 May $500,000

Mar. $475,000 June $400,000

20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected gross profit for April?

A) ($50,000)

B) $70,000

C) $100,000

D) $110,550

39) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.

Jan. $300,000 April $350,000

Feb. $350,000 May $500,000

Mar. $475,000 June $400,000

20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected total receipts (collections) for March?

A) $357,500

B) $310,000

C) $456,000

D) $475,000

40) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.

Jan. $300,000 April $350,000

Feb. $350,000 May $500,000

Mar. $475,000 June $400,000

20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected cumulative borrowing as of March 1, 2010?

A) $110,000

B) $90,000

C) $70,000

D) -0-

41) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below.

Jan. $300,000 April $350,000

Feb. $350,000 May $500,000

Mar. $475,000 June $400,000

20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected cash balance as of April 1, 2010?

A) ($48,600)

B) ($58,036)

C) $14,238

D) $21,400

42) Which of the following would NOT be found in a cash budget?

A) interest expense

B) taxes

C) depreciation

D) cash sales

43) Is it possible for the cash budget and the pro forma income statement to have different results?

A) yes, because revenues and expenses included in each statement are different

B) yes, because revenues and expenses are accounted for over different time periods

C) no, because they contain the same variables, while just using different formats

D) no, because the cash budget and the pro forma income statement provide forecasts for the same time period

44) The cash budget consists of all the following factors EXCEPT

A) cash receipts.

B) cash disbursements.

C) new financing needed.

D) net income.