Save:
Favorite
Share:
Calculator Allowed: Yes

Question

Answer

Transcription of this question: La Carniceria Sanitaria (LCS)Alejandra Morales manages a meat wholesale* business in the southern side Of Panama City,Panama. The business was set up by her father. When he retired, he changed the legal status from asole trader to a private limited company. Every year Alejandra uses her personal savings to purchasean additional 5 % Of her father’s shares. The firm is profitable, has an average monthly positive cashflow of USS1200 (after paying Alejandra’s monthly salary), no debts, and presently has a USS14 000cash balance. The present policy Of the firm is to pay dividends Of USS12000 each year.Alejandra wants to open a new wholesale facility in the northern side Of the city in January 2011.According to her business plan she would need to rent a building and purchase new equipment.• TO finance the new equipment, she will obtain a USS6() 000 bank loan which must be repaid infive years.Alejandra forecasts sales Of USSIOOOO in January 2011 and she expects sales to grow by 2%per month for the following six months.• Sales will be on credit with customers required to pay in 30 days.Forecasted cash outflows Of La Carniceria Sanitaria (LCS) at the new wholesale facility for the firstsix months (January to June 2011) will include:Monthly purchase from meat suppliersMonthly wage Of:• Senior butcherJunior butcherVan driverTotal monthly wagesMonthly charges:• TelephoneRent• Debt repayment (principal and interest)• Insurance• MiscellaneousTotal monthl ChaElectricity expenses to be paid every twomonths startin in Jan 2011USSthe purchase price (paid in cash) is equivalent to30 % of forecasted sales120010008003000150120012002003150When Alejandra makes the proposal to open the new wholesale facility, her father still has 600/0ownership Of LCS. He is concerned that Alejandra is too optimistic with her sales forecasts.TO encourage effective leadership and strong performance by the senior butcher at the newwholesale facility, Alejandra is considering a range Of financial rewards.(a)(b)(c)Outline two advantages for Alejandra’s father Of changing the legal status OfLCS from a sole trader to a private limited company.(i) Prepare a monthly cash-flow forecast for the first six months Of operationOf the new wholesale facility Of LCS.(ii) Comment on the impact that the new wholesale facility will have on thecurrent cash position and cash flow Of LCS.Examine two financial rewards LCS could use to ‘ ‘encourage effectiveleadership and strong performance by the senior butcher”[4 marks][6 marks][5 marks][5 marks]

Leave a Reply