Finance: Cash budget and Cash flow discounting.

The Grow Corporation's projected sales for the first eight months of 2011
are as follows:
January $ 90,000
February 120,000
March 135,000
April 240,000
May $360,000
June 300,000
July 280,000
August 150,000

Of Grow'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. Assume November and December sales for 2010 were $220,000 and $175,000, respectively.

Grow 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, Grow pays $10,000 per month for rent and $20,000 each month for other expenditures.

Tax prepayments of $25,000 are made each quarter, beginning in March.

The company's cash balance at December 31, 2010, 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 annually) 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 $70,000, these funds would be borrowed at the beginning of April with interest of $700 (.12 Ã- 1/12 Ã- $70,000) owed for April and paid at the beginning of May.

a. Prepare a cash budget for Grow covering the first seven months of 2011.
b. Grow has $210,000 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?

-----------------------------------------
Additional Problems

How much do the following 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. $800 invested for 12 years at 12 percent compounded annually
d. $22,000 invested for 5 years at 5 percent compounded annually

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. $600 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

What is the accumulated sum of each of the following streams of
payments?
a. $800 a year for 10 years compounded annually at 5 percent
b. $100 a year for 5 years compounded annually at 10 percent
c. $85 a year for 7 years compounded annually at 7 percent
d. $25 a year for 3 years compounded annually at 2 percent

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. $400 a year for 10 years discounted back to the present at 10 percent