CHAPTER 4: THE CASH BUDGET

1. Precise Speed Inc., a laser printer manufacturer, has the following forecasted sales for 2018:

January February March April May June July

$200,000 $350,000 $450,000 $350,000 $250,000 $200,000 $300,000

Actual sales in November and December 2017 were $375,000 and 266,667, respectively. Sixty percent of sales are on credit. The firm collects 60% of these credit sales during the first after the sale and the remainder during the following second month. Purchases constitute 60% of the next months sales. The company pays 50% during the first month after the purchase was made and the remainder in the next month. Wages, taxes and other expenses are expected to be 30% of forecasted sales. A major capital expenditure of $70,000 is expected in March. Interest payments are expected to be $30,000 every month and the company needs a minimum cash balance of $25,000. The beginning cash balance is $30,000.

a) Using the Bithlo Barbecues simple cash budget example from Chapter 4, help the financial staff of Precise Speed Inc., to prepare their cash budget for January to June 2018.

b) Assume that Precise Speed Inc. has some flexibility in scheduling the major capital expenditure expected in March. Use the Scenario Manager to see in what month Precise Speed should make this expenditure in order to minimize the maximum borrowing. Create a scenario summary to show the result.

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