The actual sales and purchases for Xenocore, Inc., for September and October 2012, along with its forecast sales and purchases for the period November 2012 through April 2013, follow.
The firm makes 20% of all sales for cash and collects on 40% of its sales in each of the 2 months following the sale. Other cash inflows are expected to be $12,000 in September and April, $15,000 in January and March, and $27,000 in February. The firm pays cash for 10% of its purchases. It pays for 50% of its purchases in the following month and for 40% of its purchases 2 months later.
Year Month Sales Purchases
2012 September $210,000 $120,000
2012 October 250,000 150,000
2012 November 170,000 140,000
2012 December 160,000 100,000
2013 January 140,000 80,000
2013 February 180,000 110,000
2013 March 200,000 100,000
2013 April 250,000 90,000
Wages and salaries amount to 20% of the preceding months sales. Rent of $20,000 per month must be paid. Interest payments of $10,000 are due in January and April. A principal payment of $30,000 is also due in April. The firm expects to pay cash dividends of $20,000 in January and April. Taxes of $80,000 are due in April. The firm also intends to make a $25,000 cash purchase of fixed assets in December.
a. Assuming the firm has a cash balance of $22,000 at the beginning of November, determine the end-of-the monthcash balances for each month, November through April.
b. Assuming that the wishes to maintain a $15,000 minimum cash balance, determine the required financing or excess cash balance for each month, November through April
c. If the firm were requesting a line of credit to cover needed financing for the period November to April, how large would this line have to be ? Explain your answer.