Prepare forecasted financial statements for Year 7 (cash flow statement)

Using past results as a starting point prepare a simple cash flow statement. Determine the cash receipts from new deposits and loan repayments and cash disbursements from interest payments to depositors, salaries, wages, taxes and other, cash dividends (assume 7M will be paid for dividends) and new loans to property owners for year 7. To determine how much to lend in year 7-assume you will want to keep $25.5M "on hand". Cash receipts minus cash disbursements will give you the change in cash. You will add the change in cash to beginning cash for year 6 to calculate ending cash in year 7.

Hints:
1. The amount of new term deposits received for year 7 can be estimated by reviewing the change in Term Deposit liability balances on the balance sheet for past years. Determine if you see an incremental increase or decline over the years. Is there a pattern that you can use to project the amount of new deposits in year 7?
465.1

2.Cash receipts from loan repayments can be estimated from the firm’s loan cards for outstanding loans. There are two loans that are repaid in year 7, loans 602 and 603. Assume that the loans, interest, and fees anticipated as being due in year 7 are actually collected. Assume loans are paid off mid-year.

3. Using the new and existing deposits assumed in 1, calculate the interest paid to depositor at prevailing interest rate on term deposits of 11% (provided in the annual report). Assume all interest payable at the end of year 6 was paid in year 7.

Impact to cash:
Interest payable year 6 (paid in year 7)
Interest expense year 7 11% for new and existing term deposits
-Interest payable year 7 (paid in year 8) 25% of interest expense for the year 7 *

* 25% payable amount calculated: interest payable/interest expense year 6 calculated as follows 12.2/48.7=25%. Apply the same percentage (25%) to calculate the interest payable for year 7 above.

4, Salaries, Wages, and Other expenses have been paid as incurred (no accrued liabilities). The amount for year 7 can be estimate by reviewing the trend in expenses for Salaries, Wages, and Other over the past 6 years.

5. Per the Notes to the Financial Statement the information in the annual report indicates that taxes are calculated using cash-basis accounting. Deferred taxes are not immaterial and not recognized in the accounts. The only interest and loan fee income expected to be collected in cash during the year will be from loans 602 and 603. The loan fees and the interest accrued on these loans during prior years are given on the loan cards

  
 

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Exhibit 1: Annual Summary Financial Statements Bastion Finance Summary of Audited Financial Statements (S Millions) Income Statements Year 1 Year 2 Year3 Year 4 Year 5 Year 6 Revenues Interest Income 4.3 19.0 28.3 36.4 39.2 46.7 Loan Fees 5.2 15.4 8.0 11.2 20.0 22.8 Operating Revenue Expenses Interest Expense Salaries and Wages 9.5 34.4 36.3 47.6 59.2 69.5 4.5 15.8 24.7 31.7 41.5 48.7 0.7 0.8 0.9 1.1 1.3 1.5 Other 0.2 0.2 0.2 0.3 0.3 0.5 Operating Expenses 5.4 16.8 25.8 33.1 43.1 50.7 Operating Income 4.1 17.6 10.5 14.5 16.1 18.8 Bad Debts 0.0 0.0 0.0 0.0 3.9 6.3 Income Tax 0.0 0.0 0.0 0.0 4.8 1.6 Net Income 4.1 17.6 10.5 14.5 7.4 10.9 Statements of Retained Earnings Beginning Retained Earnings 0.0 1.1 5.7 5.2 5.7 6.1 Net Income 4.1 17.6 10.5 14.5 7.4 10.9 Dividends 3.0 13.0 11.0 14.0 7.0 10.0 Ending Retained Earnings 1.1 5.7 5.2 5.7 6.1 7.0 Balance Sheets Assets Cash 2.9 2.0 71.8 96.2 102.4 81.1 Loans Receivable 74.5 232.9 264.8 312.6 349.3 393.3 Total Assets 77.4 234.9 336.6 408.8 451.7 474.4 Liabilities Interest Payable Term Deposits 1.1 4.0 6.2 7.9 10.4 12.2 75.0 225.0 325.0 395.0 435.0 455.0 Total Liabilities 76.1 229.0 331.2 402.9 445.4 467.2 Owner's Equity Common Stock 0.2 0.2 0.2 0.2 0.2 0.2 Retained Earnings Total Liabilities and Equity 1.1 5.7 5.2 5.7 6.1 7.0 77.4 234.9 336.6 408.8 451.7 474.4 Exhibit 1: Annual Summary Financial Statements Bastion Finance Summary of Audited Financial Statements (S Millions) Income Statements Year 1 Year 2 Year3 Year 4 Year 5 Year 6 Revenues Interest Income 4.3 19.0 28.3 36.4 39.2 46.7 Loan Fees 5.2 15.4 8.0 11.2 20.0 22.8 Operating Revenue Expenses Interest Expense Salaries and Wages 9.5 34.4 36.3 47.6 59.2 69.5 4.5 15.8 24.7 31.7 41.5 48.7 0.7 0.8 0.9 1.1 1.3 1.5 Other 0.2 0.2 0.2 0.3 0.3 0.5 Operating Expenses 5.4 16.8 25.8 33.1 43.1 50.7 Operating Income 4.1 17.6 10.5 14.5 16.1 18.8 Bad Debts 0.0 0.0 0.0 0.0 3.9 6.3 Income Tax 0.0 0.0 0.0 0.0 4.8 1.6 Net Income 4.1 17.6 10.5 14.5 7.4 10.9 Statements of Retained Earnings Beginning Retained Earnings 0.0 1.1 5.7 5.2 5.7 6.1 Net Income 4.1 17.6 10.5 14.5 7.4 10.9 Dividends 3.0 13.0 11.0 14.0 7.0 10.0 Ending Retained Earnings 1.1 5.7 5.2 5.7 6.1 7.0 Balance Sheets Assets Cash 2.9 2.0 71.8 96.2 102.4 81.1 Loans Receivable 74.5 232.9 264.8 312.6 349.3 393.3 Total Assets 77.4 234.9 336.6 408.8 451.7 474.4 Liabilities Interest Payable Term Deposits 1.1 4.0 6.2 7.9 10.4 12.2 75.0 225.0 325.0 395.0 435.0 455.0 Total Liabilities 76.1 229.0 331.2 402.9 445.4 467.2 Owner's Equity Common Stock 0.2 0.2 0.2 0.2 0.2 0.2 Retained Earnings Total Liabilities and Equity 1.1 5.7 5.2 5.7 6.1 7.0 77.4 234.9 336.6 408.8 451.7 474.4