6. Cash budget Capel Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year The following budget assumptions were used to construct the budget .Capel's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Capel's sales are made on credit with terms of 2/10, net 30, Capers experience is that 15% is collected from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 45% of Capel's finished product. The purchases are generally made one month in advance of the sale, and Capel pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $594 ($1,320 million x 0.45), and this amount would be paid in July Other cash expenses include wages and salaries at 20% of sales, monthly rent of $48 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September Assume that Capel's targeted cash balance is $300, and the estimated cash on hand on July 1 is $280. * * Use the preceding information to fill in the missing amounts in the following cash budget. Capel Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) August September October November December $1,260 $1,236 567 Credit sales $1,140 $1,176 1,200 $1,296 $1,212 556 $1,320 Credit purchases 583 August SeptemberOctober November December Cash receipts Collections from this month's sales Collections from previous month's sales Collections from sales two months previously 182 909 120 $1,211 185 927 121 $1,233 191 900 118 $1,196 194 972 126 $1,292 124 Total cash receipts $1,260 Payments for credit purchases Wages and salaries 545 583 242 247 | 259 264 Other expenses Taxes Payment for plant construction Total cash disbursements Net cash flow (Receipts-disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash $958 $2,113 $972 $230 108 $122 $214 $300 $305 122 $902 $320 $747 300 $447 $794 $194 $494 -$178 $127 Use the information provided in the budget to complete the following sentences. Capel Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Capel will Capel Company will want a credit line of at least $ expect that they will be able to invest up to and a cash to end the year with a cash to cover the month with the greatest shortfall, and the financial managers can tell the bank to in short-term marketable securities