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Cash Budget (Sharpe Corporation) and TVM Problems

Please view the attachment as well to view these questions in proper formatting. Some of the required charts did not copy over well.

1. (Cash budget) The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows:

January $90,000 May $300,000
February 120,000 June 270,000
March 135,000 July 225,000
April 240,000 August 150,000

Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.

In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures.
Tax prepayments of $22,500 are made each quarter, beginning in March. The company's cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available.
Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 ;1/12 &;$60,500) owed for April and paid at the beginning of May.

Questions:
a. Prepare a cash budget for Sharpe covering the first seven months of 2004.
b. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?

2. TABLE 5-1 Illustration of Compound Interest Calculations
YEAR BEGINNING VALUE INTEREST EARNED ENDING VALUE
1 $100.00 $6.00 $106.00
2 106 6.36 112.36
3 112.36 6.74 119.1
4 119.1 7.15 126.25
5 126.25 7.57 133.82
6 133.82 8.03 141.85
7 141.85 8.51 150.36
8 150.36 9.02 159.38
9 159.38 9.57 168.95
10 168.95 10.13 179.08

Questions: (Compound interest) To what amount will the following investments accumulate?
a. $5,000 invested for 10 years at 10 percent compounded annually
b. $8,000 invested for 7 years at 8 percent compounded annually
c. $775 invested for 12 years at 12 percent compounded annually
d. $21,000 invested for 5 years at 5 percent compounded annually

3. TABLE 5-4 PVIFi,n or the Present Value of $1
N 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.99 0.98 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.98 0.961 0.943 0.925 0.907 0.89 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.84 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.65 0.621
6 0.942 0.888 0.837 0.79 0.746 0.705 0.666 0.63 0.596 0.564
7 7 .933 0.871 0.813 0.76 0.711 0.655 0.623 0.583 0.547 0.513
8 0.923 0.853 0.789 0.731 0.582 0.627 0.582 0.54 0.502 0.467
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.5 0.46 0.424
10 0.905 0.82 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386
11 0.896 0.804 0.722 0.65 0.585 0.527 0.475 0.429 0.388 0.35
12 0.887 0.789 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319
13 0.879 0.773 0.681 0.601 0.53 0.469 0.415 0.368 0.326 0.29
14 0.87 0.758 0.661 0.577 0.505 0.442 0.388 0.34 0.299 0.263
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239

Questions: (Present value) what is the present value of the following future amounts?
a. $800 to be received 10 years from now discounted back to the present at 10 percent
b. $300 to be received 5 years from now discounted back to the present at 5 percent
c. $1,000 to be received 8 years from now discounted back to the present at 3 percent
d. $1,000 to be received 8 years from now discounted back to the present at 20 percent

4. TABLE 5-5 Illustration of a Five-Year $500 Annuity Compounded at 6 Percent
YEAR 0 1 2 3 4 5
Dollar deposits at end of year 500 500 500 500 500

$500.00
530
562
595.5
631
Future value of the annuity $2,818.50

Questions: (Compound annuity) What is the accumulated sum of each of the following streams of payments?
a. $500 a year for 10 years compounded annually at 5 percent
b. $100 a year for 5 years compounded annually at 10 percent
c. $35 a year for 7 years compounded annually at 7 percent
d. $25 a year for 3 years compounded annually at 2 percent

5. TABLE 5-6 FVIFAi,n or the Sum of an Annuity of $1 for n Years

N 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 1 1 1 1 1 1 1 1 1 1
2 2.01 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.1
3 3.03 3.06 3.091 3.122 3.152 3.184 3.215 3.246 3.278 3.31
4 4.06 4.122 4.184 4.246 4.31 4.375 4.44 4.506 4.573 4.641
5 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105
6 6.152 6.308 6.468 6.633 6.802 6.975 7.153 7.336 7.523 7.716
7 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.2 9.487
8 8.286 8.583 8.892 9.214 9.549 9.897 10.26 10.637 11.028 11.436
9 9.368 9.755 10.159 10.583 11.027 11.491 11.978 12.488 13.021 13.579
10 10.462 10.95 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937
11 11.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.56 18.531
12 12.682 13.412 14.192 15.026 15.917 16.87 17.888 18.977 20.141 21.384
13 13.809 14.68 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.523
14 14.947 15.974 17.086 18.292 19.598 21.015 22.55 24.215 26.019 27.975
15 16.097 17.293 18.599 20.023 21.578 23.276 25.129 27.152 29.361 31.772

Questions: (Present value of an annuity) what is the present value of the following annuities?
a. $2,500 a year for 10 years discounted back to the present at 7 percent
b. $70 a year for 3 years discounted back to the present at 3 percent
c. $280 a year for 7 years discounted back to the present at 6 percent
d. $500 a year for 10 years discounted back to the present at 10 percent

Attachments

Solution Summary

This solution provides a detailed, step by step explanation illustrating how to approach each of these finance based problems. This is all provided in an attached Excel document. By clicking directly onto the cells, it indicates how the values have been computed.

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