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01/03
KANDU ENTERPRISES - Cash Flow Forecasting Exercise
Assumptions:
>> The business, a Massachusetts Corporation, is a distributor
of gizmos and gadgets.
>> Product prices are as follows:
Product A - $50 per unit
Product B - $20 per unit
Product C - $10 per unit
Product D - $5 per unit
>> Sales terms are 50% at time of sale and 50% due in 30
days.
>> Inventory purchase terms are 1/3 due at time of purchase,
1/3 due in 30 days, and 1/3 due in 60 days.
>> Inventory is marked up 100%.
Transactions - Pre Startup Period:
1. The principal intends to contribute $5,000 in equity capital.
2. A bank loan will be sought for $15,000 at 10% interest for 5
years. Monthly payments on the loan would be $319.
3. Capital equipment requirements are projected at $5,000. The
average estimated useful life of the equipment is 10 years.
4. Initial inventory will be purchased for $3,000.
5. A lease is being negotiated for $500 per month with an upfront
security deposit of one month's rent.
Transactions - Months 1 - 3:
6. Projected unit sales are as follows:
Month 1 Month 2 Month 3
Product A 4 6 8
Product B 20 25 30
Product C 60 60 60
Product D 160 320 480
7. Inventory is planned to be replenished in month 2 with an additional
purchase of $3,000.
8. An exterior sign costing $1,500, and having an estimated useful
life of 5 years, is to be installed and paid for in month 2.
9. The principal will draw a salary of $1,000 per month, and a
part-time assistant will be hired for $500 per month starting in
month 2. Payroll taxes and benefits are estimated at 20%.
10. An annual insurance program costing $2,400 is planned. It will
be billed quarterly.
11. Stationery and business cards costing $200 have been ordered.
They are scheduled to be delivered and paid for in month 2.
12. An advertising program is expected to cost 10% of sales.
13. Additional office supplies will be purchased in month 2 for
$150.
14. An accountant has been retained for $150 per month.
15. A phone system is being installed. It will cost $150 to install
and monthly charges are estimated at $75.
16. Gas and electric bills are estimated to be $100 per month.
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