PROBLEM

1 a

Pharma Drug Store is a pharmacy in Portland, Maine, owned by Jane Smith, a local pharmacist.Pharma business has been good, but Ms. Smith finds that she frequently runs out of cash. To date, she has dealt with this cash shortfall by delaying payment to the drug suppliers, which is starting to cause problems. Instead of delaying payment, Ms. Smith has decided that she should borrow from the bank to have cash ready when needed. To have an estimate of how much she must borrow over the next three months, she must get a cash budget.

All of Pharma's sales are made on a cash basis, but drug purchases must be paid for during the following month. Ms. Smith pays herself a salary of $4,800 per month, the rent on her store is $2,000 per month, and a $12,000 payment for taxes is due in December. On December 1, there is $400 cash on hand, but Ms. Smith wants to maintain a target cash balance of $6,000. Pharma's estimated sales are $160,000 for December, $40,000 for January, and $60,000 for February. Estimated drug purchases are $140,000 for November, $40,000 for December, $40,000 for January, and $40,000 for February.

Find a cash budget for December, January, and February

Find the cumulative surplus cash/loan balance at the end of February.(Ignore any interest costs; i.e., assume the borrowing interest rate equals 0%.)

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1 b

??Following Problem 1, a, what is the maximum amount Jane Smith will need to borrow from the bank in order to maintain her target cash balance during the months of December, January, and February?Write the loan amount as a positive answer.(Ignore any interest costs; i.e., assume the borrowing interest rate equals 0%.)

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PROBLEM 2, a

Use the Problems Spreadsheet to answer the question.

James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October.Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in September?Ignore interest expenses.(Write the loan amount as a positive number.) Please highlight the answers

PROBLEM 2, b

Following the previous question, what will be the company's cumulative surplus cash or loan balance at the end of January? Please highlight the answers

21 May June July August September October November December January 22 Collections worksheet: 23 Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000 24 Collections 25 Within 30 days 26 30-60 days 27 60-90 days 28 Total collections 29 30 Supplies worksheet: 31 Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000 32 Payments made for labor and supplies 33 34 Net cash gain (loss): 35 Total collections 36 Total purchases 37 General and administrative salaries 38 Lease payments 39 Miscellaneous expenses 40 Taxes 41 Progress payment 42 Total payments 43 Net cash gain/loss 44 45 Borrowing/surplus summary: 46 Cash at beginning with no borrowing 47 Cash at end with no borrowing 48 Target cash balance (given) 49 Cumulative surplus cash / loan balance 50