Question

20.00 points Eli Lilly is very excited because sales for his nursery and plant company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (Assets - Liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the year with $120,000 in the bank and is bragging about the Jaguar and luxury townhouse he will buy. a. Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit (Negative amount should be indicated by a minus sign.) Ending cash balance b. Does his optimistic outlook for his cash position appear to be correct? Yes No

Answer 1

	CASH FLOW STATEMENT OF ELI LILLY ($)
	Opening cash			120000
Add	Cash from Operating Activities			96000*
Add	Cash from Investing Activities			-300000
	Cash at the end			-84000

* $96000 is the Net Profit arrived as 0.08(1200000).

His optimistic outlook for his cash position clearly does not appear to be correct as the prospective earnings are unable to outperform the excess capital expenditure he is planning.