This and the following two problems demonstrate that pro forma forecasts, cash budgets, and cash flow forecasts all yield the same estimated need for external financingprovided you dont make any mistakes.

For problems 8, 9, and 10, you may ignore the effect of added borrowing on interest expense. The treasurer of Pepperton, Inc., a wholesale distributor of household appliances, wants to estimate his companys cash balances for the first three months of 2012. Using the information in the following

chart, construct a monthly cash budget for Pepperton for January 2012 through March 2012. Does it appear from your results that the treasurer should be concerned about investing excess cash or looking

for a bank loan?

Sales (20 percent for cash, the rest on 30-day credit terms):

2011 Actual

October $ 360,000

November 420,000

December 1,200,000

2012 Projected

January $ 600,000

February 240,000

March 240,000

Purchases (all on 60-day terms):

2011 Actual

October $ 510,000

November 540,000

December 1,200,000

2012 Projected

January $ 300,000

February 120,000

March 120,000

Wages payable monthly $ 180,000

Principal payment on debt due in March 210,000

Interest due in March 90,000

Dividend payable in March 300,000

Taxes payable in February 180,000

Addition to accumulated depreciation in March 30,000

Cash balance on January 1, 2012 $ 300,000

Minimum desired cash balance 150,000