Case 1: Cash Management Ms. Amanda Truly is the new CFO of Mind and Body, Inc., which produces popular yoga and Pilates videos. Ms. Truly is concerned about the company's cash flow management, and would like to get a better "feel" for the way cash flows are managed at Mind and Body, Inc. The CEO of the company, Mr. Lawrence Jackson, is worried about the company's cash situation. Although the company has consistently produced positive net income, the level of its short-term borrowing is worrisome. Mr. Jackson would like Ms. Truly to construct a cash budget for next year so that they can devise a short-term financial policy that would effectively suit the company's cash flows. To this end, Mr. Jackson has provided Ms. Truly with the company's most recent Statement of Comprehensive Income, Statement of Financial Position, and Cash Budget, and the following disparate information: . Purchases from suppliers = 70% of predicted sales for the next month Accounts payable period 30 days Wages and other expenses = 20% of predicted sales Capital expenditures (computer system purchase) in June = $500,000 Long-term debt interest expense = $50,000 Dividends $30,000 per quarter Minimum cash balance = $200,000 Short-term cost of borrowing = 13% APR, compounded monthly Long-term cost of borrowing = 10% APR, compounded monthly Income taxes from last year's income will be paid monthly in this year Interest expense on accumulated short-term expense must be paid in the following month Customer payments: 50% in the month of sales, 30% pay in the month after sales, and 20% two months after sales Bad debt = ~ 2% if customers have not made payment after 60 days Table 1: Last Year's Statement of Comprehensive Income Sales Cost of goods sold $10,944,250 7,660,975 Wages and other expenses 2,188,850 Earnings before depreciation, interest, and taxes 1,094,425 Depreciation 100,000 Earnings before interest and taxes 994,425 Interest expense 603,760 Taxable income 390,665 Taxes 140,640 Net income 250,025 Dividends 120,000 Additions to retained earnings 130,025