1. Calculate the total amount of cash you will need to have before the launching day of...
Question:
1. Calculate the total amount of cash you will need to have before the launching day of your business, in order to buy all necessary equipment and machines, to purchase all materials and supplies needed for the first three months’ operations, and to pay your employees’ first three months salaries. Assume that your parents have agreed to loan you this amount, interest free. The following is information regarding the cash payment needs for your variable costs and fixed costs:
a. Variable Costs and Expenses: For every variable cost item, you decide to buy sufficient quantity for making the first 2,000 T-shirts. You also want to prepare sufficient amount of cash to pay for the labor costs needed for making, folding, and wrapping the first 2,000 T-shirts. Assume that you can pay your workers for a fraction of an hour. However, you cannot purchase a fraction of an ink-jet cartridge or a partial case or ream of paper.
b. Fixed Costs and Expenses: In addition to covering variable costs for the first 2,000 T-shirts, your initial amount of cash should be sufficient to pay for the first quarter’s cash needs for your fixed costs.
2. Prepare a cash budget for your company’s first year of operations. (NOT the first three months or the first 2,000 T-shirts!). Continue to assume that the selling price is $15 and that 7,800 tshirts will be made and sold in the first year. Assume all sales are cash sales and that all costs and expenses are paid in cash. Prepare cash budget for the entire year; do not separate the budget into four quarters. Your initial cash balance is the amount you reported in Item 1 above. You decide to keep a cash balance of $20,000 at December 31, 2019 and use the extra cash, if there is any, to pay back part of the loan you borrowed from your parents.
Information and solutions from previous questions to this project are provided below:
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus