question 1

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.

o Sales for the 1st 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.

o Collection period = 30 days

Accounts payable at the beginning of the expansion are $0.

o The Company quarterly purchases from suppliers = 50% of the next quarter's forecasted sales.

o 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

From above, does the company require any short-term financing?Explain.