Business Analysis and Interpretation
1. Garden Enterprises has the following business transaction estimates relating to the final quarter of 2019.
1. Receipts from Accounts Receivable are calculated as 70% in the month following the Credit Sales with a balance of 30% in the second month following the Credit Sales.
Credit Sales for September 2019 were $220,000 as they were in August 2019.
Cash Sales were $28,000 in August 2019 and September of 2019.
2. Payment of Accounts Payable is paid 65% of purchases in the month of purchase and the remaining 35% in the month following. Credit purchases in
September 2019 were $70,500.
3. The cash balance on 1 October 2019 was $78,010.
Prepare a cash budget month by month for the quarter ending 31 December 2019.
Note that marks will be deducted for each incorrect posting to the cash budget. (15 Marks).
2. Garden Enterprises having secured a loan intend to use some of the proceeds to introduce various aged trees to their product range in 2021. They have provided the following information relating to its planned activities.
a. Calculate the contribution margin, sales mix and weighted average contribution margin for each product. Also, calculate the break-even point in total units and units per product based on the provided 2021 data. (15 marks)
b. Management is concerned about competition for some of its trees and wants to alter its sales mix of trees. This initiative would increase annual fixed costs by $40 000 and alter the sales mix to 40 percent for 1-year-old trees, 30 percent for 2 years old trees and 30 percent for 3 years old trees. On the available data, would you recommend the initiative? Show all the workings. (15 marks)
3. Garden Enterprises is considering buying a truck to transport its various aged trees. This truck which would costs $156 000 is expected to earn annual net cash inflows of negative $35,000 in the current year (specialised set up costs of the truck for tree transportation) followed by positive cash flows of $62 000, $62 000, $57 000, $41 900 and $36 500 in the following 5 years before it wears out sufficiently to be unreliable and will be sold for an estimated $32 200. (15 Marks)
a. If funds can earn 5 per cent, what is the small trucks NPV?
b. If funds earn 7 per cent, what is the small trucks NPV?
c. Advise management on your recommendation regarding purchase of the truck subsequent to your NPV calculations.
d. What advice would you give management if the required payback period was two years?
Show calculations for a, b and d.