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. Capel's 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 $280, 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) May June Credit sales $1,140 $1,176 Credit purchases 540 July $1,200 August $1,212 556 August September $1,236 567 September October $1,260 583 October November December $1,296 $1,320 594 November December July Cash receipts Collections from this month's sales 178 182 185 191 194 900 909 927 945 972 Collections from previous month's sales Collections from sales two months previously Total cash receipts 118 120 121 124 126 $1,196 $1,211 $1,233 $1,260 $1,292 Cash disbursements Payments for credit purchases Wages and salaries 540 594 240 545556 242 247 48 48 61 Rent Other expenses Taxes 1,200 $958 $896 $2,113 $955 $972 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 $214 280 $494 280 $214 $300 494 $794 -$902 794 $230 -108 $122 280 -$158 $305 122 $427 280 $147 $320 427 $747 280 $467 280 $514 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 to end the year with a cash of $ and a cash of $ . Capel Company will want a credit line of at least $ to cover the month with the greatest shortfall, and the financial managers can tell the bank to expect that they will be able to invest up to $ in short-term marketable securities. Drop-down options: (generate, spend), ($747M, $1,292M, $467M), (deficit, balance), ($514M, $747M, $467M, $320M), (shortfall, surplus), ($467M, $747M, $264M, $320M), ($388M, $408M, $1,182M, $1,696M), ($264M, $1,696M, $408M, $514M)