Chapter 4, question 4-11A

a. Projections based on expected sales levels:

Nov Dec Jan Feb Mar Apr May June July August
Sales 220,000 175,000 100,000 120,000 150,000 300,000 275,000 200,000 200,000 180,000
Collections:
Month of sales (20%) 20,000 24,000 30,000 60,000 55,000 40,000 40,000
First month (50%) 87,500 50,000 60,000 75,000 150,000 137,500 100,000
Second month (30%) 66,000 52,500 30,000 36,000 45,000 90,000 82,500
Total collections 173,500 126,500 120,000 171,000 250,000 267,500 222,500
Purchases 65,000 78,000 97,500 195,000 178,750 130,000 130,000 117,000 0
Payments 65,000 78,000 97,500 195,000 178,750 130,000 130,000 117,000
Cash Receipts 173,500 126,500 120,000 171,000 250,000 267,500 222,500
Cash Disbursements --
Purchases 78,000 97,500 195,000 178,750 130,000 130,000 117,000
Rent 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Other expenditures 20,000 20,000 20,000 20,000 20,000 20,000 20,000
Tax Deposits 22,500 22,500
Interest on S-T 610 994 104 0
borrowing
Total Disbursements 108,000 127,500 247,500 209,360 160,994 182,604 147,000

Net Monthly Change 65,500 -1,000 -127,500 -38,360 89,006 84,896 75,500

Beginning Cash Balance 22,000 87,500 86,500 20,000 20,000 20,000 94,542

Additional Financing 61,000 38,360 (89,006) (10,354) 0

Needed (Repayment)
Ending Cash Balance 87,500 86,500 20,000 20,000 20,000 94,542 170,042

Cumulative Borrowing 61,000 99,360 10,354 0 0

Projections based on sale 20% higher than expected

Cash Budget
Nov Dec Jan Feb Mar Apr May June July August
Sales 220,000 175,000 120,000 144,000 180,000 360,000 330,000 240,000 240,000 216,000
Collections:
Month of sales (10%) 24,000 28,800 36,000 72,000 66,000 48,000 48,000
First month (60%) 87,500 60,000 72,000 90,000 180,000 165,000 120,000
Second month (30%) 66,000 52,500 36,000 43,200 54,000 108,000 99,000
Total collections 177,500 141,300 144,000 205,200 300,000 321,000 267,000
Purchases 78,000 93,600 117,000 234,000 214,500 156,000 156,000 140,400 0
Payments 78,000 93,600 117,000 234,000 214,500 156,000 156,000 140,400
Cash Receipts 177,500 141,300 144,000 205,200 300,000 321,000 267,000
(collections)
Cash Disbursements
Purchases 93,600 117,000 234,000 214,500 156,000 156,000 140,400
Rent 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Other expenditures 20,000 20,000 20,000 20,000 20,000 20,000 20,000
Tax Deposits 22,500 22,500
Interest on S-T 923 1,325 198 0

borrowing
Total Disbursements 123,600 147,000 286,500 245,423 187,325 208,698 170,400

Net Monthly Change 53,900 -5,700 -142,500 -40,223 112,675 112,302 96,600

Beginning Cash Balance 22,000 75,900 70,200 20,000 20,000 20,000 112,454

Additional Financing 92,300 40,223 (112,675) (19,848) 0

Needed (Repayment)
Ending Cash Balance 75,900 70,200 20,000 20,000 20,000 112,454 209,054
Cumulative Borrowing 92,300 132,523 19,848 0 0
 Projections based on sales 20% lower than expected:

Nov Dec Jan Feb Mar Apr May June July August
Sales 220,000 175,000 80,000 96,000 120,000 240,000 220,000 160,000 160,000 144,000
Collections:
Month of sales (20%) 16,000 19,200 24,000 48,000 44,000 32,000 32,000
First month (50%) 87,500 40,000 48,000 60,000 120,000 110,000 80,000
Second month (30%) 66,000 52,500 24,000 28,800 36,000 72,000 66,000
Total collections 169,500 111,700 96,000 136,800 200,000 214,000 178,000
Purchases 52,000 62,400 78,000 156,000 143,000 104,000 104,000 93,600 0
Payments 52,000 62,400 78,000 156,000 143,000 104,000 104,000 93,600
Cash Receipts 169,500 111,700 96,000 136,800 200,000 214,000 178,000
(collections)
Cash Disbursements
Purchases 62,400 78,000 156,000 143,000 104,000 104,000 93,600
Rent 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Other expenditures 20,000 20,000 20,000 20,000 20,000 20,000 20,000
Tax Deposits 22,500 22,500
Interest on S-T 297 662 9 0

borrowing
Total Disbursements 92,400 108,000 208,500 173,297 134,662 156,509 123,600

Net Monthly Change 77,100 3,700 -112,500 -36,497 65,338 57,491 54,400

Beginning Cash Balance 22,000 99,100 102,800 20,000 20,000 20,000 76,632

Additional Financing 29,700 36,497 (65,338) (859) 0

Needed (Repayment)
Ending Cash Balance 99,100 102,800 20,000 20,000 20,000 76,632 131,032

Cumulative Borrowing 29,700 66,197 859 0 0

 b. Harrison will not be able to retire the $200,000 note at the end of June.

June Ending
Sales Levels Cash Balance
Expected $94,542
+20% 112,454
-20% 76,632

Chapter 5, questions 5-2A, 5-3A, 5-5A, 5-7A

5-2A)

(a) FVn = PV (1 + i)n

$1,039.50 = $500 (1 + 0.05)n

2.079 = FVIF 5%, n yr.

Thus n = 15 years (because the value of 2.079 occurs in the 15 year row of the 5 percent column of
Appendix B).
(b) FVn = PV (1 + i)n

$53.87 = $35 (1 + .09)n

1.539 = FVIF 9%, n yr.

Thus, n = 5 years
(c) FVn = PV (1 + i)n

$298.60 = $100 (1 + 0.2)n

2.986 = FVIF 20%, n yr.

Thus, n = 6 years
 (d) FVn = PV (1 + i)n
$78.76 = $53 (1 + 0.02)n
1.486 = FVIF 2%, n yr.
Thus, n = 20 years

5-3A)

(a) FVn = PV (1 + i)n

$1,948 = $500 (1 + i)12
3.896 = FVIF i%, 12 yr.
Thus, i = 12% (because the Appendix B value of 3.896 occurs in the 12 year row in the 12 percent
column)
(b) FVn = PV (1 + i)n

$422.10 = $300 (1 + i)7

1.407 = FVIFi%, 7 yr.

Thus, i = 5%
(c) FVn = PV (1 + i)n

$280.20 = $50 (1 + i)20

5.604 = FVIF i%, 20 yr.

Thus, i = 9%
(d) FVn = PV (1 + i)n
$497.60 = $200 (1 + i)5
= FVIFi%, 5 yr.
 Thus, i = 20%

5-5A)

(a) PV = FVn
PV = $800
PV = $800 (0.386)
PV = $308.80
(b) PV = FVn
PV = $300
PV = $300 (0.784)
PV = $235.20
(c) PV = FVn

PV = $1,000
PV = $1,000 (0.789)
PV = $789
(d) PV = FVn

PV = $1,000
PV = $1,000 (0.233)
PV = $233

5-7A)
(a) FVn = PV (1 + i)n
compounded for 1 year
FV1 = $10,000 (1 + 0.06)1
FV1 = $10,000 (1.06)
FV1 = $10,600
compounded for 5 years
FV5 = $10,000 (1 + 0.06)5
FV5 = $10,000 (1.338)
FV5 = $13,380
compounded for 15 years
FV15 = $10,000 (1 + 0.06)15
FV15 = $10,000 (2.397)
FV15 = $23,970
(b) FVn = PV (1 + i)n
compounded for 1 year at 8%
FV1 = $10,000 (1 + 0.08)1
FV1 = $10,000 (1.080)
FV1 = $10,800
compounded for 5 years at 8%
FV5 = $10,000 (1 + 0.08)5
FV5 = $10,000 (1.469)
FV5 = $14,690
compounded for 15 years at 8%
 FV15 = $10,000 (1 + 0.08)15
FV15 = $10,000 (3.172)
FV15 = $31,720
compounded for 1 year at 10%
FV1 = $10,000 (1 + 0.1)1
FV1 = $10,000 (1 + 1.100)
FV1 = $11,000
compounded for 5 years at 10%
FV5 = $10,000 (1 + 0.1)5
FV5 = $10,000 (1.611)
FV5 = $16,110
compounded for 15 years at 10%
FV15 = $10,000 (1 + 0.1)15
FV15 = $10,000 (4.177)
FV15 = $41,770
(c) There is a positive relationship between both the interest rate used to compound a present sum and the number of
years for which the compounding continues and the future value of that sum.