Practice question

To answer the question below effectively, see Unit $6$ pages $398-402.$

NPF

Steve Dawes founded NPF in $2015.$ It was set up with a very generous

donation from a retired businessman. It is an online non$-$profit

organization, financing educational opportunities for children in developing

countries. Steve has been looking at his financial statements and is getting

worried about NPF$\text{'}$s liquidity situation. NPF$\text{'}$s cash reserves are being used

up quickly and in the current poor economic climate, NPF$\text{'}$s main source of

finance $-$ online donations $-$ is falling.

In $2020,$ NPF has no debt but also no non$-$current assets. NPF$\text{'}$s expenses

are an internet usage fee, a maintenance fee for servers and computers,

and a web designer's fee for regularly updating the NPF website. Steve is

thinking of engaging in some investment projects.

$NPF$ has volunteers from all over the world running the organization. An

online community of social networking websites connects them with Steve

as the chief website administrator. All funds to finance educational projects

are transferred electronically and only email communication is allowed.

NPF aims to become the first paperless charity.

Steve has been asked by a very popular rock band to sponsor a reunion

concert, which will be broadcast only over the internet. The opportunity

would generate substantial public relations opportunities, but some

volunteers on the NPF forums are not convinced. They argue that the

money spent sponsoring the concert should be used to provide further

educational opportunities for children. They also believe that many people

watching the concert may be frustrated if global broadband connections

become too slow or fail.

Steve is preparing a cash flow forecast for the next four months $($all figures

refer to $2020)$ based on the following:

Donations are transferred to the educational projects one month after

the money has been received.

Educational projects receive $95\%$ of all donations.

a$)$ Define the term investment.

marks$]$

b$)($i$)$ Using Steve's forecast figures, prepare a cash flow forecast

for NPF from June to September $2020,$ clearly showing

the opening and closing monthly cash flow forecast

balances.

$($ii$)$ Comment on your results from part $($i$).$

$($iii$)$ Explain two possible solutions to the liquidity problems

highlighted in parts $($i$)$ and $($ii$).$