What information is needed to prepare a cash budget


Part I. Winner Where She Goes, Inc. is considering an investment of $800,000 in a new equipment line for boning and packaging beef products. The equipment has an expected life of 5 years. Sales are expected to be 900,000 units per year, at a price of $3 per unit. Fixed costs excluding depreciation are $300,000 per year, and variable costs are $1.80 per unit. The equipment will be depreciated over 5 years using the straight line method with a salvage value of zero. The corporation pays income tax at a rate of 34%.

Find out:

a) Total costs
b) Total Revenues
c) Operation Profit (EBIT)
d) Net income after tax and interest.
e) Break-Even Units and dollars (Hint: BE (Units)= Fixed cost/price per unit - variable cost per unit)

Part II. Every organization knows the significant of a cash budget and how it can determine the future business.

Analyze the reasons for holding cash and underlie the need for cash budgeting. Discuss these questions:

a) What information is needed to prepare a cash budget?

b) What is the relationship between an operating and a cash budget?

c) Why is it important for an organization to prepare a cash budget?

Solution Preview :

Prepared by a verified Expert
Finance Basics: What information is needed to prepare a cash budget
Reference No:- TGS02040424

Now Priced at $25 (50% Discount)

Recommended (92%)

Rated (4.4/5)