Question

Selected financial data of Future Technologies, Inc., at December 31, Year 1, are shown below:


The following additional information is available for the year ended December 31, Year 1:


For Year 2, Future Technologies anticipates a 5% sales growth. To counterbalance this lower than expected growth rate, the company implements cost-cutting strategies to reduce cost of goods sold by 2% from the Year 1 level. All other expenses are expected to increase by 5%. Expected net income for Year 2 is $20,000. Ending Year 2 inventory is estimated at $90,000 and there is no expected balance in accrued taxes. The company requires $175,000 to buy new equipment in Year 2.
The minimum desired cash balance is $30,000. The company offers a discount of 2% of sales if payment is received in 10 days. It is expected that 10% of sales take advantage of this discount, while the remaining 90% are collected (on average) in 60 days.

Required:
Prepare a what-if analysis of cash needs (cash forecast) for Year 2. Will Future Technologies need to borrowmoney?


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  • CreatedJanuary 22, 2015
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