Question 3 (20 marks Show all your Work Billy Taylor has just been fired from his job. The manager Trevor Henry is looking for a replacement. You decide to apply for this job. As part of the evaluation process Trevor asks you to prepare a cash budget using the information below. You are also required to explain in a brief paragraph (200-400 words) why a pro forma cash budgets are essential to the success of a firm. Provide arguments to support this. Expected revenues for the first two years are as follows. o Sales for the 1s quarter of Year 3 are projected at $650,000. Year 1 ('000s) Q2 Q3 Q1 04 Q1 280.00 Year 2 1'000s) 02 03 350.00 440.00 04 550.00 50.00 90.00 160.00 200.00 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 be 8% of sales. Accounts receivable at the beginning of this expansion are SO. o Collection period = 60 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. Suppliers are paid on average in 45 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, . The company tax rate is 35%. CS Scanned with CamScanner