FIN3403 CASE STUDY #2 1

Source: Fundamentals of Corporate Finance, Ross,12e: McGraw-Hill Publications

WORKING CAPITAL MANAGEMENT

You have recently been hired to work in your company's newly established treasury department. The company is a small company that produces cardboard boxes in a variety of sizes for different purchases. The owner of the company, works primarily in the sales and production 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 have been brought in to do.

The company currently has a cash balance of $305,000 and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $525,000. The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of #125,000. All sales and purchases are made on credit.

The owner has projected the following gross sales for each of the next four quarters.

\f22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 91 92 03 Q4 27 28 Target Cash Balance 29 30 Net Cash inflow 31 32 New short term investments EE 34 Income from short term investments 35 36 Short term investments sold 37 38 Mew short term borrowing 39 40 Interest on short term borrowing 41 42 Short term borrowing repaid 43 44 Ending Cash Balance 45 46 Minumum Cash Balance 47 48 Cumulative surplus/[deficit] 49 50 Beginning short term investments 51 52 Ending short term investments 53 54 Beginning short term debt 55 56 Ending short term debt 57 Sheet1 Sheet2 Sheet3 Sheet4 +(your name) MANUFACTURING CASH BUDGET Q1 Q2 Q3 Q4 Target Cash Balance Cash Opening Balance 9 Net Cash inflow 10 Net Cash Outflow 11 Ending cash balance 12 13 Minimum Cahs balance 14 15 Cumulative surplus/(deficit) 16 17 18 19 20 21 22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 91 Q2 03 94 27 28 Target Cash Balance 29 30 Net Cash inflow 31 32 New short term investments 33 Sheet1 Sheet2 Sheet3 Sheet4 +W N H (your name) MANUFACTURING CASH BUDGET Q1 03 Q4 7 Target Cash Balance 9 Net Cash inflow 10 11 Ending cash balance 12 13 Minimum Cahs balance 14 15 Cumulative surplus/(deficit) 16 17 18 19 20 21 22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 Q2 Q3 Q4 27 28 Target Cash Balance 29 Sheet1 Sheet2 Sheet3 Sheet4 +22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 92 93 27 28 Target Cash Balance 29 30 Net Cash inflow 31 32 New short term investments 33 34 Income from short term investments 35 36 Short term investments sold 37 38 Mew short term borrowing 39 40 Interest on short term borrowing 41 42 Short term borrowing repaid 14 Ending Cash Balance 45 46 Minumum Cash Balance 47 48 Cumulative surplus/[deficit] 49 50 Beginning short term investments 51 52 Ending short term investments 53 54 Beginning short term debt 55 56 Ending short term debt 57 Sheet1 Sheet2 Sheet3 Sheet4 +W N H (your name) MANUFACTURING CASH BUDGET Q1 03 Q4 7 Target Cash Balance 9 Net Cash inflow 10 11 Ending cash balance 12 13 Minimum Cahs balance 14 15 Cumulative surplus/(deficit) 16 17 18 19 20 21 22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 Q2 Q3 Q4 27 28 Target Cash Balance 29 Sheet1 Sheet2 Sheet3 Sheet4 +23 [your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 92 Q4 27 28 Target Cash Balance 29 30 Net Cash inflow 31 32 New short term investments 33 34 Income from short term investments 35 36 Short term investments sold 37 38 Mew short term borrowing 39 40 Interest on short term borrowing 41 42 Short term borrowing repaid 43 44 Ending Cash Balance 45 46 Minumum Cash Balance 47 48 Cumulative surplus/[deficit) 49 50 Beginning short term investments 51 52 Ending short term investments 53 54 Beginning short term debt 55 56 Ending short term debt 57 58 Sheet1 Sheet2 Sheet3 Sheet4 +W N H (your name) MANUFACTURING CASH BUDGET Q1 03 Q4 7 Target Cash Balance 9 Net Cash inflow 10 11 Ending cash balance 12 13 Minimum Cahs balance 14 15 Cumulative surplus/(deficit) 16 17 18 19 20 21 22 23 (your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 Q2 Q3 Q4 27 28 Target Cash Balance 29 Sheet1 Sheet2 Sheet3 Sheet4 +23 your name) MANUFACTURING 24 SHORT TERM FINANCIAL PLAN 25 26 Q1 Q2 Q3 Q4 27 28 Target Cash Balance 29 30 Net Cash inflow 31 32 New short term investments 34 Income from short term investments 35 36 Short term investments sold 37 38 Mew short term borrowing 39 40 Interest on short term borrowing 41 42 Short term borrowing repaid 43 14 Ending Cash Balance 45 46 Minumum Cash Balance 47 48 Cumulative surplus/[deficit] 49 50 Beginning short term investments 51 52 Ending short term investments 53 54 Beginning short term debt 55 56 Ending short term debt 57 5.8 Sheet1 Sheet2 Sheet3 Sheet4 +