638 PART 7 Short-Tem Financial Planning and Management MINICASE Piepkorn Manufacturing Working Capital Management borrowing and maintains a have recenaly been hired by Plepkom Manofacturing to uring is a small company that produces cardboard ncwy established treasury departiment. Plepkorm I percent per quarter on all shonte ariety of sines for differeet purchasers. Gary term financial plan for the com cash additional glns ed Gary has asked you to prepare a work in the for the company under the He has also asked you to changes in several inputs. the owner of the company, works primarily in the prodaction areas of the company. Currently, the company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, the finance area needs work, and that's what you've been brought in to do. The company currently has a cash balance of $240,000, and it plans to purchase new box-folding machinery in the in Piepkorn, sales and QUESTIONS 1. Use the numbers given to complete the cash budget short-term financial plan. Rework the cash budget and short 2. fourth quarter at a cost of $445.000. The machinery will assuming Piepkorn changes to a mini $100,000. be purchased with cash because of a discount offered. The o maintain a minimum cash belance of3. You have looked at the credit policy offeredby $125,000. All sales and purchases are made on credit. Gary Plepkom has projected the following gross sales tor credit policy is 1/10, net 40. The discount will be be offered on the first day of the first quarter You to exa budget and short-term financial plan. If this credi is implemented, you believe that 40 percent of all will take advantage of it, and the accounts period will decline to 36 days. Rework the cash budge and short-term financial plan under the new credit polo and a minimum cash balance of $100,000. What in rate are you effectively offering customers? each of the next four quarters: mine how this credit policy would affect 01 02 03 04 Gross $1,240,000 $1310,000 $1,370,000 $1,450,000 sales Also, gross sales for the first quarter of next year are projected at $1,290,000. Piepkorn currently has an accounts receiv able period of 53 days and an accounts receivable $630,000. Twenty percent of the accounts balance ts receivable balance 4. You have talked to the company's suppliers about the is from a company that has just entered bankruptcy, and it is credit terms Piepkorn receives. Currentdly, the compuer likely this portion of the accounts receivable will never be collected. receives terms of net 45. The suppliers have stated ta they would offer new credit terms of 1.3/15, net 40 The discount would begin to be offered on the first day of te Piepkorn typically orders 50 percent of next quarter's pro- jected gross sales in the current quarter, and suppliers are typ- first quarter. What interest rate are the suppliers offering ically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interestfinancial plan assuming you take the credit terms on payment of $130,000 on its long-term debt. the company? Rework the cash budget and shon-1m all orders and the minimum cash balance is $100,000 The company uses a local bank for its short-term finan Also assume that Piepkorn offers the credit term cial needs. It pays 1.5 percent per quarter on all short-termprevious question. PIEPKORN MANUFACTURING Cash Budget Q1 02 03 04 Target cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) If you are not familiar with credit policy quotations, see Chapter 20. 638 PART 7 Short-Tem Financial Planning and Management MINICASE Piepkorn Manufacturing Working Capital Management borrowing and maintains a have recenaly been hired by Plepkom Manofacturing to uring is a small company that produces cardboard ncwy established treasury departiment. Plepkorm I percent per quarter on all shonte ariety of sines for differeet purchasers. Gary term financial plan for the com cash additional glns ed Gary has asked you to prepare a work in the for the company under the He has also asked you to changes in several inputs. the owner of the company, works primarily in the prodaction areas of the company. Currently, the company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, the finance area needs work, and that's what you've been brought in to do. The company currently has a cash balance of $240,000, and it plans to purchase new box-folding machinery in the in Piepkorn, sales and QUESTIONS 1. Use the numbers given to complete the cash budget short-term financial plan. Rework the cash budget and short 2. fourth quarter at a cost of $445.000. The machinery will assuming Piepkorn changes to a mini $100,000. be purchased with cash because of a discount offered. The o maintain a minimum cash belance of3. You have looked at the credit policy offeredby $125,000. All sales and purchases are made on credit. Gary Plepkom has projected the following gross sales tor credit policy is 1/10, net 40. The discount will be be offered on the first day of the first quarter You to exa budget and short-term financial plan. If this credi is implemented, you believe that 40 percent of all will take advantage of it, and the accounts period will decline to 36 days. Rework the cash budge and short-term financial plan under the new credit polo and a minimum cash balance of $100,000. What in rate are you effectively offering customers? each of the next four quarters: mine how this credit policy would affect 01 02 03 04 Gross $1,240,000 $1310,000 $1,370,000 $1,450,000 sales Also, gross sales for the first quarter of next year are projected at $1,290,000. Piepkorn currently has an accounts receiv able period of 53 days and an accounts receivable $630,000. Twenty percent of the accounts balance ts receivable balance 4. You have talked to the company's suppliers about the is from a company that has just entered bankruptcy, and it is credit terms Piepkorn receives. Currentdly, the compuer likely this portion of the accounts receivable will never be collected. receives terms of net 45. The suppliers have stated ta they would offer new credit terms of 1.3/15, net 40 The discount would begin to be offered on the first day of te Piepkorn typically orders 50 percent of next quarter's pro- jected gross sales in the current quarter, and suppliers are typ- first quarter. What interest rate are the suppliers offering ically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interestfinancial plan assuming you take the credit terms on payment of $130,000 on its long-term debt. the company? Rework the cash budget and shon-1m all orders and the minimum cash balance is $100,000 The company uses a local bank for its short-term finan Also assume that Piepkorn offers the credit term cial needs. It pays 1.5 percent per quarter on all short-termprevious question. PIEPKORN MANUFACTURING Cash Budget Q1 02 03 04 Target cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) If you are not familiar with credit policy quotations, see Chapter 20