Melissa Becker is chief financial officer of Valero Technology, and is responsible for the company's budgeting process. Becker's staff is preparing the Valero budget for 20X6. The starting point is the statement of cash flows of the current year, 20X5, which follows:

Valero Technology

Statement of Cash Flows

20X5

Cash Flows from Operating Activities

Collections from customers...........................................$ 35,600

Interest received............................................................ 100

Purchases of inventory.................................................. (11,000)

Operating expenses....................................................... (16,600)

Net cash provided by operating activities..................... 8,100

Cash Flows from Investing Activities

Purchases of property and equipment............................ (5,000)

Purchases of investments............................................... (7,500)

Sales of investments...................................................... 8,100

Net cash used by investing activities............................. (4,400)

Cash Flows from Financing Activities

Payment of dividends...................................................... (2,700)

Payment of short-term debt............................................. (1,000)

Long-term borrowings by issuing notes payable............. 1,200

Issuance of common stock............................................... 300

Net cash used by financing activities............................... (2,200)

Increase (decrease) in Cash.............................................. 1,500

Cash, beginning of year.................................................... 2,600

Cash, end of year..............................................................$ 4,100

Required

1. Prepare the Valero Technology cash budget for 20X6. Date the budget simply "20X6" and denote the beginning and ending cash balances as "beginning" and "ending." Assume the company expects 20X6 to be the same as 20X5, but with the following changes:

a. In 20X6, the company expects a 10% increase in collections from customers, a 5% increase in purchases of inventory, and a doubling of additions to property and equipment.

b. Operating expenses will drop by $2,000.

c. There will be no sales of investments in 20X6.

d. Becker plans to end the year with a cash balance of $3,000.

2. Does the company's cash budget for 20X6 suggest that Valero is growing, holding steady, or decreasing in size? (Challenge)