Prepare a quarterly cash budget, Corporate Finance

You are the Executive Director for the brand new Burkina Faso field office of a U.S.- based not-for-profit organization called Paper for All that distributes academic resources for children in Burkina Faso one of the most illiterate countries in Africa. You are planning for your first year of operations, FY 2011. Your field office will have three full-time salaried employees. As Field Director, you will earn $50,000 per year; the two Field Managers will each earn $40,000 per year. Health insurance and other benefits will equal 25% of each employee's annual salary. Rent and utilities for your office in Ouagadougou will be $1,000 and $200 per month, respectively. You plan to take out a loan of $250,000 on the first day of the year and use the proceeds to purchase five delivery trucks at a cost of $50,000 each. The loan carries an annual interest rate of 8%. No principal repayments are due until next year. Each truck has an expected useful lifetime of nine years and an expected salvage value of $5,000; your organization uses the straight-line depreciation method. Fuel, insurance, and maintenance costs will total $800 per truck per month, and drivers' wages will cost an additional $1,200 per truck per month. Each truck can deliver up to 2,500 academic kits (chalk, paper, pens, pencils, notebooks) per month. You have arranged to purchase academic kits for a discounted price of $4 each from a manufacturer. Under the terms of a contract, the Literacy Coalition will pay Paper for All $5 for each kit distributed. In addition, the Hope Foundation has pledged a grant of $200,000 per year. (Note: there are no templates for this question.)

a. Using break-even analysis, calculate the minimum number of kits that must be distributed in FY 2011 in order to break even. Assume that all five trucks will be used (i.e. treat the costs associated with the trucks as fixed rather than step-fixed).

b. Prepare a flexible annual operating budget for FY 2011 showing the following three scenarios: (1) the break-even quantity you calculated above, (2) 145,000 kits, and (3) 150,000 kits.

c. Prepare a quarterly cash budget (showing each of the four quarters and the annual total) assuming 150,000 kits will be delivered evenly throughout the year.

Assume that all payments and receipts will be timely with the following exceptions. The supplies payments, utilities payments, and Literacy Coalition contract receipts will all occur with a one-month lag. The interest payment is due in the fourth quarter. The Hope Foundation grant will be received in two equal installments in the first and second quarters.

Posted Date: 3/29/2013 5:41:15 AM | Location : United States

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