Exercise 4 (Short-Term Finance and Planning)

You are hired as a financial manager and your first task is to establish the cash budget of your firm.

You gathered the following information.

The firm receives all income from sales

Sales estimates (in millions)

lQ1 = 1,000; Q2 = 1,250; Q3 = 1,500; Q4 = 2,000; Q1 next year = 1,200

Accounts receivable

lBeginning receivables = $3000

lAverage collection period = 45 days

Accounts payable

lPurchases = 60% of next quarter's sales

lBeginning payables = 1,200

lAccounts payable period is 45 days

Other expenses

lWages, taxes, and other expense are 25% of sales

lInterest and dividend payments are $100

lA major capital expenditure of $500 is expected in the second quarter

The initial cash balance is $100 and the company maintains a minimum balance of $50