Question #1 (10 marks)

Based on the information below build a Cash Budget for J & J Sports Inc.s potential expansion.

• Expected revenues for the first two years are as follows.
  • Sales for the 1^st quarter of Year 3 are projected at $650,000.

Year 1 (000s)				Year 2 (000s)
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
50.00	90.00	160.00	200.00	280.00	350.00	440.00	550.00

• General and administrative expenses (wages, taxes, office etc.) are estimated to be $10,000 in Year 1 - Q1 and 20% of sales thereafter.

• Sales salaries and commissions are estimated to be 8% of sales.

• Accounts receivable at the beginning of this expansion are $0.
  • Collection period = 30 days

• Accounts payable at the beginning of the expansion are $0.
  • The Company quarterly purchases from suppliers = 50% of the next quarters forecasted sales.
  • Suppliers are paid on average in 60 days.

• The company expects capital outlays in both Year 1 Q1 of $40,000 and Year 2- Q1 of $20,000 each.

• The expansion will start with an initial cash loan from the parent company of $100,000. Interest on this loan is $2,500 per quarter. The company will pay back the full $100,000 in the Year 2 Q4.

• Interest on any additional short-term borrowing is expected to be 5% per quarter.

• The Company wishes to maintain a $100,000 minimum balance at all times to best manage its working capital and any unexpected commitments.

Question #2 (10 marks)

From above, does the company require any short-term financing? Explain. (50 100 words)

1. If so, use the template in Appendix A to build a Short-Term Financing Plan.