4. You have talked to the company’s suppliers about the credit terms Kalgoorlie receives. Currently, the company receives terms of net 45.

The suppliers have stated that they would offer new credit terms of 1.5/15, net 40. The discount would begin to be offered on the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $100 000. Also assume that Kalgoorlie offers the credit terms detailed in Question 3.

You have recently been hired by Kalgoorlie Manufacturing to work in the newly established treasury department. Kalgoorlie Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers. Gary Peters, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoe box and all payables in another. Because of the disorganised system, the finance area needs work, and that is what you have been brought in to do.
The company currently has a cash balance of $305 000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $525 000. The machinery will be purchased with cash because of a discount offered. The company’s policy is to maintain a minimum cash balance of $125 000. All sales and purchases are made on credit.

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Kalgoorlie Manufacturing cash budget Target cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) Q1 Q2 Q3 Q4