Question 2 Lion Apparel Ltd is a relatively young company in the apparel business, selling clothing....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Question 2 Lion Apparel Ltd is a relatively young company in the apparel business, selling clothing. At the beginning of June, the company has an overdraft of £112,000. The table below shows the income and expenses of the firm for the upcoming 6 months : Revenue Sewing machines bought Public Relations Equipment Lease Utility Salary Miscellaneous expenditure June £000 240 312 30 80 0 32 40 July £000 300 360 36 0 60 32 48 August September October November £000 £000 £000 £000 340 440 500 560 390 40 0 0 36 48 320 50 80 0 36 52 300 60 0 0 40 52 320 60 0 0 40 52 The firm intends to buy a new delivery vehicle in August for £48,000. The company have to pay taxes amounting to £60,000 by September 1". The firm's clothing are sold to individual customers by cash. However, the firm sell to clothing shops on a 4 months trade credit. Individual customers made up 80% of sales. Accounts receivable in June amounts to £220,000. 25% of this amount is from sales in the month of May, 25% from the month of April, 25 % from the month of March and 25% from the month of February. The firm's sewing machines are bought through accounts payable of 3 months. This occur in the beginning of June. The balance of the accounts payable in the beginning of June is £280,000. Depreciation of sewing machines amounts to £1,000 per month. Miscellaneous expenses incorporate £16,000 per month for depreciation. The sales price is expected to increase by 2% per month June onwards. Salary is expected to increase by 1% per month June onwards. Required: (a) (b) Graham who is the Chief Financial Officer (CFO) of Lion Apparel Ltd argued that the cash flow forecast can be a complicated financial process and there are no benefits attached to it. Do you agree or disagree with Graham's argument ? Justify your stance with proper explanations. (3 marks) One day, Lion Apparel Ltd encounter a surge in its sales and other business activities. Evaluate a potential problem that the firm is very likely to encounter under this scenario. In your discussion, explain the risks that the firm will encounter with respect to this problem. (4 marks) Create a cash flow forecast for Lion Apparel Ltd from 1 June to 30th November. Show the cash balance at the end of each month. (12 marks) (d) Based upon the cash flow forecast, evaluate Lion Apparel's liquidity and discuss the potential problems (if any) the firm may encounter. In your discussion, provide suggestions on how to improve the firm's liquidity. Question 2 Lion Apparel Ltd is a relatively young company in the apparel business, selling clothing. At the beginning of June, the company has an overdraft of £112,000. The table below shows the income and expenses of the firm for the upcoming 6 months : Revenue Sewing machines bought Public Relations Equipment Lease Utility Salary Miscellaneous expenditure June £000 240 312 30 80 0 32 40 July £000 300 360 36 0 60 32 48 August September October November £000 £000 £000 £000 340 440 500 560 390 40 0 0 36 48 320 50 80 0 36 52 300 60 0 0 40 52 320 60 0 0 40 52 The firm intends to buy a new delivery vehicle in August for £48,000. The company have to pay taxes amounting to £60,000 by September 1". The firm's clothing are sold to individual customers by cash. However, the firm sell to clothing shops on a 4 months trade credit. Individual customers made up 80% of sales. Accounts receivable in June amounts to £220,000. 25% of this amount is from sales in the month of May, 25% from the month of April, 25 % from the month of March and 25% from the month of February. The firm's sewing machines are bought through accounts payable of 3 months. This occur in the beginning of June. The balance of the accounts payable in the beginning of June is £280,000. Depreciation of sewing machines amounts to £1,000 per month. Miscellaneous expenses incorporate £16,000 per month for depreciation. The sales price is expected to increase by 2% per month June onwards. Salary is expected to increase by 1% per month June onwards. Required: (a) (b) Graham who is the Chief Financial Officer (CFO) of Lion Apparel Ltd argued that the cash flow forecast can be a complicated financial process and there are no benefits attached to it. Do you agree or disagree with Graham's argument ? Justify your stance with proper explanations. (3 marks) One day, Lion Apparel Ltd encounter a surge in its sales and other business activities. Evaluate a potential problem that the firm is very likely to encounter under this scenario. In your discussion, explain the risks that the firm will encounter with respect to this problem. (4 marks) Create a cash flow forecast for Lion Apparel Ltd from 1 June to 30th November. Show the cash balance at the end of each month. (12 marks) (d) Based upon the cash flow forecast, evaluate Lion Apparel's liquidity and discuss the potential problems (if any) the firm may encounter. In your discussion, provide suggestions on how to improve the firm's liquidity.
Expert Answer:
Answer rating: 100% (QA)
a I disagree with Grahams argument that the cash flow forecast has no benefits Cash flow forecasting is an essential financial process for any business including Lion Apparel Ltd Here are the reasons ... View the full answer
Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
Posted Date:
Students also viewed these accounting questions
-
At the beginning of June 2017, Willingham Distributing Company's ledger showed Cash $18,000, Merchandise Inventory $5,900, and D. Willingham, Capital, $23,900. During the month of June, the company...
-
At the beginning of June 2014, Willingham Distributing Company's ledger showed Cash $18,000, Merchandise Inventory $5,000, and D. Willingham, Capital, $23,000. During the month of June, the company...
-
At the beginning of June 2015, Julia left her husband and is currently living in an apartment. The couple has no children. At the end of the current year, no formal proceedings have occurred in...
-
The production of paper involves a pulping step to break down wood chips into cellulose and lignin. In the Kraft process, an aqueous, pulping-feed solution, known as white liquor, is used that...
-
Show that for any set of points (xi , Yi), i = 1, 2, . . . , n. (Y - Y) ! i-1
-
In September 2016, Niem Duong opened a car hire business. The following transactions occurred during the first month of the business (ignore GST). Sep. 1 3 4 5 15 18 19 24 27 29 30 Niem opened a bank...
-
D Sankey, a manufacturer, purchases a lathe for the sum of 4,000. It has an estimated life of five years and a scrap value of 500. Sankey is not certain whether he should use the straight line or the...
-
The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investments return is 10%; the second investments return has a standard deviation of...
-
The following data are for Trendy Fashion Apparel:North SouthSales volume (units): ? ? ?Blouses 5,037 4,346 ? ? ?Skirts 3,086 8,020Sales price per unit: ? ? ?Blouses $23 $15 ? 2 answers
-
A physics professor did daredevil stunts in his spare time. His last stunt was an attempt to jump across a river on a motorcycle (Fig. 3.51). The takeoff ramp was inclined at 53.0", the river was...
-
Indicate the limit per item or invoice regarding the requirements to apply a de minimis safe harbor to tangible property expenditures for a business taxpayer. a. For a taxpayer with applicable...
-
What is the percentage expected annual rate of return on a $ 1 million investment for a 1 5 % interest in a company? In 4 years, the company will be acquired for $ 1 1 million.
-
Emma owns a small artisanal chocolate business. She sells her handcrafted chocolates at local markets and supplies them to a few independent boutique stores in her town. For the chocolates sold at...
-
21) Consider the following MLP network: X1 V2 2 a) b) 1 3 1 8.9 0.8 0.7 0.6 8.5 8.4 0.3 0.2 0.1 8 -10 -5 5 Sigmoid values: s(-5)= 0; s (-4) = .02; s(-3) = .04; s(-2) = .12; s(-1) = .27; s(0) = .5;...
-
Simplify. 3 x-8x +16x x-4x2
-
There are two basic elements required for any crime: actus rea and mens rea. A crime must be the result of a voluntary act and it must have the evil intent at the time of the crime. This is...
-
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90 percent loan for 25 years at 9 percent interest and 1 point and the second is...
-
What mass of H2 will be produced when 122 g of Zn are reacted? Zn(s) + 2HCl(aq) ( ZnCl2(aq) + H2(g)
-
Refer to the situation discussed in E3-2. In E3-2, Consider the following situations: 1. Sysco Foods pays cash on April 1 to purchase food packages from a wholesale distributor. The packages are sold...
-
Ultimate Butter Popcorn issues 7%, 15-year bonds with a face amount of $60,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually. At what price...
-
DS Unlimited has the following transactions during August. August 6 Purchases 70 handheld game devices on account from GameGirl, Inc., for $200 each, terms 1/10, n/60. August 7 Pays $400 to Sure...
-
A lessee is evaluating whether a lease term is a major part of the remaining life of an asset in order to determine the proper lease classification. The lessee leases office space through a lease...
-
On January 1, 2020, Lessee Company leases a vehicle with a fair value of \(\$ 30,000\) from Lessor Company for 3 years, with no renewal options. The estimated life of the vehicle is 6 years and...
-
For each of the following four separate finance lease scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification. a. Lease payments are \(\$...
Study smarter with the SolutionInn App