(Statement of cash flows) San Francisco Sea Salt’s controller prepared the following cash flow statements (in thousands of dollars) for the past two years, the current year (2010), and the upcoming year (2011):
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|
|
|
Budget |
|
|
2008 |
2009 |
2010 |
2011 |
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|
Net cash flows from operating activities |
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Net income |
$ 41,700 |
$ 39,200 |
$ 43,700 |
$ 45,100 |
|
Add net reconciling items |
2,200 |
4,300 |
3,000 |
4,000 |
|
Total |
$ 43,900 |
$ 43,500 |
$ 46,700 |
$ 49,100 |
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Net cash flows from investing activities |
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|
|
|
|
Purchase of plant and equipment |
$(18,700) |
|
$(12,200) |
$ (4,600) |
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Sale (purchase) of investments |
8,700 |
$ (3,600) |
(12,600) |
(15,800) |
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Other investing inflows |
1,200 |
800 |
600 |
2,400 |
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Total |
$ (8,800) |
$ (2,800) |
$(24,200) |
$(18,000) |
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Net cash flows from financing activities |
|
|
|
|
|
Payment of notes payable |
$(12,000) |
$(24,000) |
$(15,000) |
$ (7,000) |
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Payment of dividends |
(20,000) |
(7,000) |
(13,300) |
(20,000) |
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Total |
$(32,000) |
$(31,000) |
$(28,300) |
$(27,000) |
|
Net change in cash |
$ 3,100 |
$ 9,700 |
$ (5,800) |
$ 4,100 |
After preparation of the budgeted cash flow statement for 2011, Lana Kaslowski, the company president, asked you to recompile it based on a separate set of facts. She is evaluating a proposal to purchase a local area network (LAN) computer system for the company at a total cost of $50,000. The proposal has been deemed to provide a satisfactory rate of return. However, she does not want to issue additional stock and would prefer not to borrow any more money to finance the project.
Projecting the market value of the accumulated investments for the previous two years ($3,600 and $12,600) reveals an estimate that these investments could be liquidated for $18,400. Kaslowski said the investments scheduled for 2011 could be delayed indefinitely and that dividends could be reduced to 40 percent of the budgeted amount. These are the only changes that can be made to the original forecast.
a. Evaluate the cash trends for the company during the 2008–2011 period.
b. Giving effect to the preceding changes, prepare a revised 2011 budgeted statement of cash flows and present the original and revised versions in a comparative format.
c. Based on the revised budgeted SCF, can the LAN computer system be purchased if Kaslowski desires an increase in cash of at least $1,000?
d. Comment on the usefulness of the report prepared in (b) to Kaslowski.