expected to be repeat customers Page 808 MINI CASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers. Gary Piepkorn, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox 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 $265.000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $490,000. The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of $137.000. All sales and purchases are made on credit. Gary Piepkom bas projected the following gross sales for each of the next four quarters 01 02 SE240.000 51.500.000 $1.600.000 93 04 51.360.000 Click here for a description of Table Mini Casc. Also, gross sales for the first quarter of next year are projected at $1,420.000. Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $690.000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected Piepkom typically orders 50 percent of next quarter's projected gross sales in the current quarter, and suppliers are typically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest payment of $140,000 on its long-term debt. The company uses a local bank for its short-term financial needs. It pays 1.5 percent per quarter in all short-term borrowing and maintains a money market account that pays I percent per quarter on all shon-term deposits Gury has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. The following questions introduce refinements to the short-term financial plan reflecting changes in the minimum cash balance, credit policy, and credit terms from suppliers. For each question, rework the cash budget and determine the incremental cash generated or expended due to the change. Based on your incremental cash calculation state your recommendation on whether the change should be implemented in your analysis, assume that all the preceding changes are in place, Questions 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $140,000 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first quarter. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 40 percent of all sales will take advantage of it and the accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of S140.000. What interest rate are you effectively offering customers? 4. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45. The suppliers have stated that they would offer new credit terms of 1.5/15. net 40. The discount would begin to be offered in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $110.000. Also assume that Piepkom offers the credit terms in the previous question Page 809 03 PIEPKORN MANUFACTURING Cash Budget 01 92 03 Torget cosh bolonce Net cash inflow Ending cash balance Minimum cash balonce Cumulative surplus (deficit) Click here for a description of Table: Mini Case Question 4. Cash Budget PIEPKORN MANUFACTURING Short-Term Financial Plan 01 02 03 ou Target cash balance Net cash inflow New short term investments Income from short-term investmerts Short term investments sold New short term borrowing Interest on short-term borrowing Short term borrowing repoid Ending cos balance Minimum cash balance Cumulative surplus (defici) Beginning short term investments Ending short-term investments Beginning short-term debt Ending short term debt Click here for a description of ble Mini Case Question. Short Term Financial Plan Page 808 MINI CASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers, Gary Piepkorn, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox 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 $265,000. and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $490.000. The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of $137.000. All sales and purchases are made on credit. Gary Piepkorn has projected the following gross sales for each of the next four quarters 01 02 Q3 04 Gross sales 51,360,000 51,440,000 $1,500,000 $1.500.000 Click here for a description of Table: Mini Case. Also, gross sales for the first quarter of next year are projected at $1.420,000. Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $690,000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected Piepkorn typically orders 50 percent of next quarter's projected gross sales in the current quarter, and suppliers are typically paid in 42 days Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest payment of $140.000 on its long-term debt. The company uses a local bank for its short-term financial needs. It pays 15 percent per quarter in all short-term borrowing and maintains a money market account that pays I percent per quarter on all short-term deposits Gary has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. The following questions introduce refinements to the short-term financial plan reflecting changes in the minimum cash balance, credit policy, and credit terms from suppliers. For each question, rework the cash budget and determine the incremental cash generated or expended due to the change. Based on your incremental cash calculation, state your recommendation on whether the change should be implemented. In your analysis, assume that all the preceding changes are in place. Questions Questions 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $140.000 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first quarter. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 40 percent of all sales will take advantage of it, and the accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $140,000. What interest rate are you effectively offering customers? 4. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45. The suppliers have stated that they would offer new credit terms of 1.5/15. net 40. The discount would begin to be offered in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $110.000. Also assume that Piepkorn offers the credit terms in the previous question og PIEPKORN MANUFACTURING Cash Budget 01 02 02 Target cosh balance Net auch in low Ending cash balance Minimum cash balonce Cumulative surplus (deficit) Click here for a description of Table: Mini Case Question 4: Cash Budget PIEPKORN MANUFACTURING Short-Term Anancial Plan 01 02 03 04 Target cosh balance Net cash inflow New short-term investments Income from short-term investments Short-term investments sold New short term borrowing Interest on short-term borrowing Short-term borrowing repaid Ending cosh bolance Minimum cash balance Cumulative surplus (detic) Beginning short term investments Ending short-term investments Beginning short-term debt Ending short-term debt Click here for a description of Table: Mini Case Question 4. Short-Term Financial Plan. expected to be repeat customers Page 808 MINI CASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers. Gary Piepkorn, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox 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 $265.000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $490,000. The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of $137.000. All sales and purchases are made on credit. Gary Piepkom bas projected the following gross sales for each of the next four quarters 01 02 SE240.000 51.500.000 $1.600.000 93 04 51.360.000 Click here for a description of Table Mini Casc. Also, gross sales for the first quarter of next year are projected at $1,420.000. Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $690.000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected Piepkom typically orders 50 percent of next quarter's projected gross sales in the current quarter, and suppliers are typically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest payment of $140,000 on its long-term debt. The company uses a local bank for its short-term financial needs. It pays 1.5 percent per quarter in all short-term borrowing and maintains a money market account that pays I percent per quarter on all shon-term deposits Gury has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. The following questions introduce refinements to the short-term financial plan reflecting changes in the minimum cash balance, credit policy, and credit terms from suppliers. For each question, rework the cash budget and determine the incremental cash generated or expended due to the change. Based on your incremental cash calculation state your recommendation on whether the change should be implemented in your analysis, assume that all the preceding changes are in place, Questions 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $140,000 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first quarter. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 40 percent of all sales will take advantage of it and the accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of S140.000. What interest rate are you effectively offering customers? 4. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45. The suppliers have stated that they would offer new credit terms of 1.5/15. net 40. The discount would begin to be offered in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $110.000. Also assume that Piepkom offers the credit terms in the previous question Page 809 03 PIEPKORN MANUFACTURING Cash Budget 01 92 03 Torget cosh bolonce Net cash inflow Ending cash balance Minimum cash balonce Cumulative surplus (deficit) Click here for a description of Table: Mini Case Question 4. Cash Budget PIEPKORN MANUFACTURING Short-Term Financial Plan 01 02 03 ou Target cash balance Net cash inflow New short term investments Income from short-term investmerts Short term investments sold New short term borrowing Interest on short-term borrowing Short term borrowing repoid Ending cos balance Minimum cash balance Cumulative surplus (defici) Beginning short term investments Ending short-term investments Beginning short-term debt Ending short term debt Click here for a description of ble Mini Case Question. Short Term Financial Plan Page 808 MINI CASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers, Gary Piepkorn, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox 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 $265,000. and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $490.000. The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of $137.000. All sales and purchases are made on credit. Gary Piepkorn has projected the following gross sales for each of the next four quarters 01 02 Q3 04 Gross sales 51,360,000 51,440,000 $1,500,000 $1.500.000 Click here for a description of Table: Mini Case. Also, gross sales for the first quarter of next year are projected at $1.420,000. Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $690,000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected Piepkorn typically orders 50 percent of next quarter's projected gross sales in the current quarter, and suppliers are typically paid in 42 days Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest payment of $140.000 on its long-term debt. The company uses a local bank for its short-term financial needs. It pays 15 percent per quarter in all short-term borrowing and maintains a money market account that pays I percent per quarter on all short-term deposits Gary has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. The following questions introduce refinements to the short-term financial plan reflecting changes in the minimum cash balance, credit policy, and credit terms from suppliers. For each question, rework the cash budget and determine the incremental cash generated or expended due to the change. Based on your incremental cash calculation, state your recommendation on whether the change should be implemented. In your analysis, assume that all the preceding changes are in place. Questions Questions 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $140.000 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first quarter. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 40 percent of all sales will take advantage of it, and the accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $140,000. What interest rate are you effectively offering customers? 4. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45. The suppliers have stated that they would offer new credit terms of 1.5/15. net 40. The discount would begin to be offered in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $110.000. Also assume that Piepkorn offers the credit terms in the previous question og PIEPKORN MANUFACTURING Cash Budget 01 02 02 Target cosh balance Net auch in low Ending cash balance Minimum cash balonce Cumulative surplus (deficit) Click here for a description of Table: Mini Case Question 4: Cash Budget PIEPKORN MANUFACTURING Short-Term Anancial Plan 01 02 03 04 Target cosh balance Net cash inflow New short-term investments Income from short-term investments Short-term investments sold New short term borrowing Interest on short-term borrowing Short-term borrowing repaid Ending cosh bolance Minimum cash balance Cumulative surplus (detic) Beginning short term investments Ending short-term investments Beginning short-term debt Ending short-term debt Click here for a description of Table: Mini Case Question 4. Short-Term Financial Plan