SEMESTER Spring 2018

Corporate Finance (FIN722)

Solution of Assignment No. 1
Case A: Marks 16 (4.5+7+4.5)
Feb March April May June
INFLOWS
(4.5)
Total Sales 1,500,000 1,500,000 2,100,000 2,100,000 2,100,000
SALES - CASH
i 840,000 840,000 840,000
40%
SALES - CREDIT
ii 900,000 900,000 1,260,000
60%
TOTAL
(Add i & ii) 1,740,000 1,740,000 2,100,000
INFLOWS
OUTFLOWS
(7)
Total Direct
650,000 750,000 750,000 825,000
Material Purchases
Direct Material
Purchases-CASH i 375,000 375,000 412,500
50%
Direct Material
Purchases- ii 325,000 375,000 375,000
CREDIT 50%
Labor and overhead
iii 410,000 410,000 410,000
costs
General and
administrative iv 415,000 425,000 435,000 445,000
expenses
Repayment of Loan v - - 800,000
TOTAL
(Add i-v) 1,535,000 1,595,000 2,442,500
OUTFLOWS
Ending Cash
(4.5)
NET CASH FLOW (Inflow – Outflow) 205,000 145,000 -342,500
OPENING CASH 12,000 217,000 362,000
ENDING CASH 12,000 217,000 362,000 19,500

Note:
• Depreciation is a non-cash expense; therefore, it will not be part of cash budget.
 Case B: Marks 4 (2+2)

Upper Limit = Minimum Cash Balance + Spread

Upper Limit = 120,000 + 25,000 = Rs. 145,000

Decision
• If cash balance reaches to upper limit of Rs. 145,000, company needs to buy securities worth
Rs. 10,000 (145,000 – 135,000) to get back to return point.
• In case, when cash balance falls to lower limit of Rs. 120,000, company needs to sell
securities worth Rs. 15,000 (135,000 – 120,000) to get back to Return Point.