The following are the assumptions for the projected cash flow and profit or loss statements for 20X3

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Question:

The following are the assumptions for the projected cash flow and profit or loss statements for 20X3 for Zinc Mining Inc.:

• Zinc will sell 176,900 metric tons of zinc at an average price of $2,180 per metric ton. These sales occur evenly throughout the year.

• The operating costs will be $1,442 per metric ton sold and occur evenly throughout the year.

• Wages and salaries will be 7% of sales.

• Royalty costs are 6% of revenue.

• Depreciation is $14,400,000 for 20X3

• Mining taxes are 11% of revenue.

• General and administration costs are $17,935,000 for 20X2 and will increase by 2.5% for 20X3.

• Interest on the decommissioning obligation is expected to be $750,000. Note that this interest is accrued.

• Income tax is $606,129 for the year.

• Customers pay their accounts on day 40.

• Suppliers of operating costs are paid on day 28.

• All other costs are paid as incurred within the year.

• Capital expenditures for existing operations in 20X3 are expected to be $23,575,000

• Accounts receivable as at January 1, 20X3, are $13,575,000.

• Accounts payable and accrued liabilities are $3,410,000 as at January 1, 20X3.

• Zinc has two bond issues. The first has a face value of $20,000,000 and a coupon rate of 8%. The second has a face value of $10,000,000 and a coupon rate of 7%. Both pay interest semi-annually on June 30 and December 31, are projected to be outstanding throughout 20X3, and have a carrying value equal to the face value.

• The balance in the cash account on January 1, 20X3, was $25,550,000.

Required:

a) Prepare a cash budget for Zinc for 20X3.

b) Prepare an income statement for Zinc for the year ending December 31, 20X3.