Problem 18-11 Calculating the Cash Budget

Here are some important figures from the budget of Cornell, Inc., for the second quarter of 2013:

	April			May			June
Credit sales	$	328,000		$	308,000		$	368,000
Credit purchases		136,000			159,000			184,000
Cash disbursements
Wages, taxes, and expenses		44,800			12,300			63,800
Interest		11,800			11,800			11,800
Equipment purchases		88,000			166,000			0

The company predicts that 5 percent of its credit sales will never be collected, 20 percent of its sales will be collected in the month of the sale, and the remaining 75 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.

In March 2013, credit sales were $198,000, and credit purchases were $138,000. Using this information, complete the following cash budget. (Do not round intermediate calculations.)

April

May

June

Beginning cash balance

$

131,000

$

$

Cash receipts

Cash collections from credit sales

Total cash available

$

$

$

Cash disbursements

Purchases

$

$

$

Wages, taxes, and expenses

Interest

Equipment purchases

Total cash disbursements

$

$

$

Ending cash balance

$

$

$

Weston Industries has a debtequity ratio of 1.1. Its WACC is 8.2 percent, and its cost of debt is 6.4 percent. The corporate tax rate is 35 percent.

a.	What is Westons cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Cost of equity capital

%

b.	What is Westons unlevered cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Unlevered cost of equity capital

%

c-1	What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Cost of equity

%

c-2	What would the cost of equity be if the debt-equity ratio were 1? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Cost of equity

%

c-3	What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Cost of equity

%