Question

im Daniels Health Products has eight stores. The firm wants to expand by two more stores and needs a bank loan to do this. Mr. Hewitt, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. Following are actual and forecasted sales figures:

 

Actual			Forecast			Additional Information
November	$520,000		January	$600,000		April forecast	$650,000
December	540,000		February	640,000
			March	660,000

 

Of the firm's sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the second month after the sale. Materials cost 30 percent of sales and are purchased and received each month in an amount sufficient to cover the current month’s expected sales. Materials are paid for in the month they are received. Labour expense is 50 percent of sales and is paid in the month of sales. Selling and administrative expense is 8 percent of sales and is also paid in the month of sales. Overhead is $36,000 in cash per month; Amortization expense is $11,600 per month. Taxes of $9,500 will be paid in January and dividends of $3,500 will be paid in March. Cash at the beginning of January is $112,000, and the minimum desired cash balance is $107,000.