Problem:
Fluffy Bunnies makes cuddly toys for sale in the USA. All costs and income is in dollars.
The company makes 2,000 toys for sale in each month and sells them all for cash payments (no credit sales). Each bunny sells for $6.25 including VAT. Variable costs per item are $3.50 including VAT. Variable costs are paid as they are incurred. Fixed costs are $12,000 per annum including VAT on all these costs. VAT is paid every three months in the month following the end of the calendar quarter.
Wage costs are $2,500 per month on which 22% withholding taxes are deducted and paid twice a year in the month following the half year close.
VAT is 12.5%.
Ignore all other taxes.
1) Create a spread sheet for one year's cash flow giving monthly balances and starting with a cash balance of $10,000.
2) Do you run out of money?
3) What would an investor say if you asked for investment based on this cash flow?