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Financial Management

Homework Assignment #1

1. On January 1, 2018, you incorporated Jobs University (hereafter “Jobs U.”), a not-for-profit organization with the mission of alleviating income insecurity through job training for low-skilled workers. The organization’s third fiscal year will be January 1–December 31, 2020,

2. Jobs U. will start the fiscal year with a cash balance of $127,000.

3. Jobs U. operates throughout the year, and in FY’2020 it expects 100 new trainees each month (unchanged from FY 2019).

4. Per its contract with Wagner City, the city will increase its reimbursement to Jobs U. from $900 per trainee in FY 2019 to $1,100 per trainee in FY 2020.

5. Wagner City makes the contractual payments with a one-month lag.

6. In FY 2020, Jobs U. expects to receive $400,000 in contributions from corporate sponsors, spread evenly throughout the year.

7. Jobs U. will have 15 full-time employees in FY 2020 (unchanged from FY 2019). Full-time employees will:

a. Earn an average annual salary of $65,000, up from an average annual salary of $60,000 in FY 2019;

b. Be paid monthly with a one-month lag; and

c. Be paid benefits valued at 35% of their salaries.

8. Jobs U. will have 5 part-time employees in FY 2020 (unchanged from FY 2019). Part-time employees will:

a. Earn an average of $14 per hour in wages in FY 2020, up from an average of $13.50 per hour in FY 2019.

b. Work 20 hours per week, 52 weeks per year

c. Be paid weekly with a one-week lag.

9. Jobs U. owns its facility and industrial equipment, which:

a. Was purchased in 2018 for $2,500,000.

b. Has an estimated useful life of 25 years, and

c. No salvage value.

10. Jobs U. owns 120 computers, each of which:

a. It purchased for $500 in 2018,

b. Has an estimated useful life of 5 years, and

c. A salvage value of $50.

11. Jobs U. has:

a. Been renting its office furniture at a cost of $10,000 per month, but

b. Expects to purchase and start using new furniture (and to stop renting furniture) July 1, 2020.

a) The furniture will cost $100,000, and

b) Will have an estimated useful life of 10 years, and

c) A salvage value of $5,000.

12. To purchase the facility and equipment, on January 1, 2018, Jobs U.:

a. Took out a 10-year, $2,500,000 mortgage

b. with a 3% annual interest rate

c. Makes a principal repayment and an interest payment on the last day of each fiscal year.

d. Will owe just $2,057,305 in outstanding principal (round the interest expense up to the nearest whole dollar) on December 31, 2020, and

e. Will repay $231,358 in principal when due on December 31, 2020.

13. Finally, in FY’2020 Jobs U. will use:

a. $1,250 in utilities per month, and

b. $850 in supplies per month.

c. There are no lags or leads in payments on these expenses.

Note: For this and any other problem you encounter in this course, you do have sufficient information to make all the required calculations. If you get stuck, use your best judgment and try to utilize tutoring hours for additional assistance.

Your Assignment:

1. Using the Excel template posted on the Brightspace site:

a. Prepare an annual operating budget for FY 2020 on the accrual basis of accounting.

b. Prepare a quarterly cash budget for FY 2020.

(Hint: For cash budget purposes, there are 3 months or 13 weeks in a quarter and 52 weeks in a year. Do not try to calculate the actual number of days in a particular quarter or convert weeks to months or vice versa!)

2. Write a few sentences explaining which factor(s) are driving the difference between the organization’s expected profit/loss on the operating budget and ending cash balance on the cash budget.

3. Do you recommend revising your budget plan in light of the organization’s expected profit/loss and/or ending cash balance? Why or why not?