1. Examine the key reasons why a business may not want to hold too much or too little working capital. Provide two (2) examples that illustrate the consequences of either situation.

2. From the scenario, analyze TFCs cash budget to determine key methods in which the budget may be optimized (e.g., by renegotiating terms and conditions on some of its payables, etc.). If you believe that there is room for improvement, recommend key strategies for TFC to use in order to optimize its cash budget. If you do not believe that this is the case, provide a rationale for your response.

"Please see attached TFC Scenario document and TFC Cash Budget spreadsheet"

FIN534 Week 9 Scenario Script: The Cash Budget Slide Scene/Interaction Narration # Slide 1 Intro Scene Slide 2 Scene 2 Don in front of TFC with Linda End of scene FIN534_9_2_Don-1: Good day, Linda. The Dividend policy review was fantastic. Knowing where we stand as a company and how we can reward our shareholders is great management/investor relations. As managers, we have certain commitments to TFC that include shareholder wealth, but also long term success of the company. As investors, while long term success is good, they would like to see a return on their investment. Being able to provide some type of return through dividends and accruing potential stock growth is a good business practice for us, especially if we have strong financials to back it up. As you know, we are a conservative company that may be going through a major expansion. The board has not yet voted on the approval of the expansion project. Two of the board members recommended that we look at our Cash Budget. Since we are a conservative company we always want to make sure we are managing our cash effectively. So I would like you to proceed with an analysis of the Cash Budget for the last half of the year to see where we stand. Good luck! And if you don't mind I would like to stick around and help out with this assignment. FIN534_9_2_Linda-1: Don, we are looking forward to it. This will allows us to get a better grasp on where the cash is and where it is going. I am supposed to meet the Intern in the conference room now. Please come and join us, as another financial mind is always a financial plus. Slide 3 Slide 4 Scene 3 Linda in the conference room Cash Budget on Screen Go to next slide (Is the Intern in the room?) Scene 4 Dollar Sign Linda speaking FIN534_9_3_Linda-1: Cash budgets are important for businesses and personal use. They can help you see where money is coming in and going out. They can be for any length of time or over a time frame. The more frequent the time frame the more you will see where money is going. For example if you create a daily budget you can see where everything is going on a daily basis. But sometimes it is not necessary and monthly budgets will be better suited as payments that are made on a monthly basis. But ultimately it is up to the company or individual as to what suits them best. FIN534_9_3_Linda-2: At TFC we never really analyzed our Cash Budget. That might seem odd for a company our size, but we were always cash conscious so as long as we had sufficient cash we were fine with our cash account. However, with a project of this magnitude analyzing the Cash Budget is important. FIN534_9_4_Linda-1: Since we prepared our Cash Budget for this year, a lot has changed. The expansion project has made us revisit our Cash Budget. It is also a time for us to look at how we collect and pay out to see if change is needed. We have decided to only look at the last six months of the year to see what our cash will look like on a monthly basis. Typically our Cash Budget would be for twelve months, but this expansion project is an exception. As you have noticed, when financial forms are created there is a chance that they will be revised. A huge undertaking like this expansion has created a need to revisit it. There are many types of Cash Budgets and they are created to meet the needs of the business or individual. There are a lot of Slide 5 Cash Budget Show Excel file projections that go into them so it is important that we have analyzed the projections before making a decision on what to use. FIN534_9_5_Linda-1: Let's take a deeper look into our Cash Budget for the next six months. At TFC we try to work with our \"Body Builders\A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 B C D E F TFC's Cash Budget, July - December, 2013 (Do Payment Terms For Body Builders: Percentage of Body Builders who pay in 1st month Percentage of Body Builders who pay in 2nd month Percentage of Body Builders who don't pay in 1st or 2nd month. Bad debt Percentage (not collected) - reduces 3rd month payments received TFC's Cash Budget, July - December, 2013 (Dollars in Thousands) Projected Cash Transactions: May Sales Forecast: $55,000 Cash Collections on sales: During Current mon 0.5 (Sales) During 2nd month: 0.45 (prior month's sales) Due in 3rd month: 0.1 (sales 2 months ago) Less bad debts (BD% Sales 2 months ago) Total Cash Collections: Cash Payments: Operating Expenses Other payments (interest on LT bonds, dividends, etc.) Taxes Payment for expansion project and loans Total Cash Payments: Net cash flows: Assuming zero cash to begin forecasted period Net cash flow: Total Cash Collections - Total Cash Payments Cumulative Cash Balance Cash surplus/shortage: Target cash balance per month Cash Surplus or Shortage per month: G H I J K L 1 y - December, 2013 (Dollars in Thousands) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 TFC Current Terms 50% 45% 5% 1% June $55,000 July $55,000 August $55,000 Sept $50,000 Oct $50,000 Nov $60,000 $27,500.0 $24,750.0 $2,750.0 $550.0 $54,450.0 $27,500.0 $24,750.0 $2,750.0 $550.0 $54,450.0 $25,000.0 $25,000.0 $24,750.0 $22,500.0 $2,750.0 $2,750.0 $550.0 $550.0 $51,950.0 $49,700.0 $30,000.0 $22,500.0 $2,500.0 $500.0 $54,500.0 $45,000.0 $0.0 $45,000.0 $0.0 $45,000.0 $0.0 $45,000.0 $45,000.0 $45,000.0 $45,000.0 $0.0 $0.0 $6,900.0 $8,000.0 $51,900.0 $53,000.0 $0.0 $9,450.0 $9,450.0 $9,450.0 $18,900.0 $50.0 $3,300.0 $18,950.0 $15,650.0 $1,500.0 $17,150.0 $10,000.0 $550.0 $10,000.0 $8,900.0 $10,000.0 $10,000.0 $8,950.0 $5,650.0 $10,000.0 $7,150.0 $8,000.0 $53,000.0 M 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Dec $60,000 $30,000.0 $27,000.0 $2,500.0 $500.0 $59,000.0 $45,000.0 $25,000.0 $6,900.0 $8,000.0 $84,900.0 $25,900.0 $8,750.0 $10,000.0 $18,750.0