Class #6 Assignment

Problem #1

Daley Corp has requested a Line of Credit (LOC) from your bank. You have been assigned to evaluate the firm, determine if a LOC is appropriate, and ? if you recommend the LOC - specify the LOC terms. The LOC terms are to include: maximum limit of the LOC; estimate of when the limit will be reached; determine the firm?s ability to fully repay the LOC; and determine by when the LOC must be fully repaid.

[Note: a Line of Credit is a type of short-term loan where the client may borrow (draw down the line) up to a pre-specified limit. The loan must be then fully satisfied (100% paid down) by a date certain. All of the terms are specified in advance]

To evaluate the Daley Corp request you must prepare a Cash Budget for the next year using the following criteria & Daley Corp provided data.

The Sales forecast, Selling expenses, G&A expenses, scheduled long-term Interest payments, and scheduled IRS Income Tax payments are described in the following schedule.

The firm?s Collection schedule has been historically consistent and is expected to remain the same into the next year. That schedule is: 10% in current month; 50% in next month; and 40% in the following month.

The firm purchases production materials 1 month prior to the sale ? and the cost of the purchase is 45% of the expected sale amount.

Daley?s A/P ? trade credit policy is to pay 25% of purchases immediately; 55% in the next month; and the remaining 20% in the following month.

Production expenses are 30% of the prior month?s sales.

Daley?s opening cash balance at the start of Jan in the forecast year will be $9,300.

Daley Corp is required to maintain a minimum cash balance of $8,000

Class #6 Assignment Problem #1 Daley Corp has requested a Line of Credit (LOC) from your bank. You have been assigned to evaluate the firm, determine if a LOC is appropriate, and - if you recommend the LOC - specify the LOC terms. The LOC terms are to include: maximum limit of the LOC; estimate of when the limit will be reached; determine the firm's ability to fully repay the LOC; and determine by when the LOC must be fully repaid. [Note: a Line of Credit is a type of short-term loan where the client may borrow (draw down the line) up to a prespecified limit. The loan must be then fully satisfied (100% paid down) by a date certain. All of the terms are specified in advance] To evaluate the Daley Corp request you must prepare a Cash Budget for the next year using the following criteria & Daley Corp provided data. The Sales forecast, Selling expenses, G&A expenses, scheduled long-term Interest payments, and scheduled IRS Income Tax payments are described in the following schedule. The firm's Collection schedule has been historically consistent and is expected to remain the same into the next year. That schedule is: 10% in current month; 50% in next month; and 40% in the following month. The firm purchases production materials 1 month prior to the sale - and the cost of the purchase is 45% of the expected sale amount. Daley's A/P - trade credit policy is to pay 25% of purchases immediately; 55% in the next month; and the remaining 20% in the following month. Production expenses are 30% of the prior month's sales. Daley's opening cash balance at the start of Jan in the forecast year will be $9,300. Daley Corp is required to maintain a minimum cash balance of $8,000