HGR CO

HGR Co

The following financial information relates to HGR Co:

Statement of financial position at the current date (extracts)

$000 $000 $000
Non-current assets 48,965
Current assets
Inventory 8,160
Accounts receivable 8,775
Current liabilities 16,935
Overdraft 3,800
Accounts payable 10,200
14,000
Net current assets 2,935
Total assets less current liabilities 51,900

Cash flow forecasts from the current date
Month 1 Month 2 Month 3
$000 $000 $000
Cash operating receipts 4,220 4,350 3,808
Cash operating payments 3,950 4,100 3,750
Six-monthly interest on traded loan notes 200
Capital investment 2,000

The finance director has completed a review of accounts receivable management and has proposed staff training and operating procedure improvements, which he believes will reduce the accounts receivable collection period to the average sector value of 53 days. This reduction would take six months to achieve from the current date, with an equal reduction in each month. He has also proposed changes to inventory management methods, which he hopes will reduce the inventory holding period by two days per month each month over a three-month period from the current date. He does not expect any change in the current level of accounts payable.

HGR has an overdraft limit of $4,000,000. Overdraft interest is payable at an annual rate of 6.17% per year, with payments being made each month based on the opening balance at the start of that month. Credit sales for the year to the current date were $49,275,000 and cost of sales was $37,230,000. These levels of credit sales and cost of sales are expected to be maintained in the coming year. Assume that there are 365 working days in each year.

(b) For HGR Co, calculate the bank balance in three months’ time if:
(i) no action is taken; and
(ii) the finance director’s proposals are implemented.

I know the values are a bit confusing , but can you please help me solve this