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Jeremy Slacker started the Del Fuego Surf Shop on January 1 after determining that business school classes conflicted with his preferred activity. He invested $50,000 in the shop$25,000 of his own savings and $25,000 borrowed from an acquaintance. The loan is to be repaid in 5 years. Jeremy will pay the lender annual interest at a rate of 8 percent. Shortly after opening, Jeremy realized that he is not the best financial planner and has come to you for help. With some prodding, you are able to establish that Jeremy plans to sell only two models of surfboard, the Zuma and the Coronado, for at least the first year. Data on the boards are given as follows.

	Zuma	Coronado
Expected annual sales (units)		480			240
Retail price (per unit)	$	350		$	650
Purchase cost (per unit)		250			400

Additional information on the planned operations for the year includes the following.

1. Equipment costing $40,000 was purchased for cash when the store opened. The equipment will be depreciated over five years using straight-line depreciation.
2. Because of the fantastic weather in Del Fuego, Jeremy expects sales to occur uniformly over the year. Sales will be both for cash (60 percent) and on account (40 percent). Sales on account are assumed to be collected in two months.
3. Jeremy will maintain inventory equal to one-half of a month's sales. All boards will be purchased from the manufacturer on credit with payment made one month after purchase.
4. Annual cash selling, general, and administrative expenses are $36,000 fixed plus 10 percent of revenues.
5. Jeremy's tax rate is 40 percent.

Required:

a.Prepare a cash budget for the year. b.Jeremy wants to ensure that he has cash on hand at the end of the year equal to 150 percent of the current accounts payable balance on December 31. Will he meet that requirement? c.Consider only the assumption about the percentage of sales that will be made on account (currently 40 percent). What percentage would exactly achieve the goal set by Jeremy in requirement (b)?

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