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    Cash Position of the Firm

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    A firm anticipates sales of $200K in January, growing by 15% per month throughout the year. It purchases 50% of its sales 60 days in advance of the actual sale, and pays for them 30 days in advance of the sale. Credit sales equate to 90% of all sales. Expenses for each month are 25% of total sales; taxes are paid at the rate of 35% each quarter; and credit sales are paid as follows: 75% 30 days from sale; 20% 60 days from sale; 5% 90 days from sale.

    Beginning cash for the year is $50,000, and the minimum cash required is $35,000. In July a note is due and payable for $200K; and in December a second note is due and payable for $400,000.

    Will the firm have enough cash on hand to pay these notes? If not, what are its options? If so, show the work and the actual cash position of the firm.

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    Solution Summary

    The solution explains how to determine the cash position of a firm at the end of a given period.