First Pages 644 PART 7 Short Term Financial Planning and Management MINICASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to borrowing and maintains a money market account that pays work in the newly established treasury department. Piepkorn 1 percent per quarter on all short-term deposits. Manufacturing is a small company that produces cardboard Gary has asked you to prepare a cash budget and short- boxes in a variety of sizes for different purchasers. Gary term financial plan for the company under the current policies. Piepkorn, the owner of the company, works primarily in He has also asked you to prepare additional plans based on the sales and production areas of the company. Currently, changes in several inputs. the company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, QUESTIONS the finance area needs work, and that's what you've been 1. Use the numbers given to complete the cash budget and brought in to do. short-term financial plan. The company currently has a cash balance of $305,000, and it plans to purchase new box-folding machinery in the fourth 2. Rework the cash budget and short-term financial plan quarter at a cost of $525,000. The machinery will be purchased assuming Piepkorn changes to a minimum balance of with cash because of a discount offered. The company's policy $100.000 is to maintain a minimum cash balance of $125,000. All sales 3. You have looked at the credit policy offered by Piepkorn's and purchases are made on credit. competitors and have determined that the industry standard Gary Piepkorn has projected the following gross sales for credit policy is 1/10, net 40. The discount will begin to each of the next four quarters: be offered on the first day of the first quarter. You want 10 examine how this credit policy would affect 02 Q3 Q4 budget and short-term financial plan. If this credit policy Gross $1,310,000 $1,390,000 $1,440,000 $1,530,000 is implemented, you believe that 40 percent of all sales will take advantage of it, and the accounts receivable sales period will decline to 36 days. Rework the cash budget and Also, gross sales for the first quarter of the next year are short-term financial plan under the new credit policy and a projected at $1,405,000. Piepkorn currently has an accounts minimum cash balance of $100,000. What interest rate are receivable period of 53 days and an accounts receivable bal- you effectively offering customers? ance of $645,000. Twenty percent of the accounts receivable 4. You have talked to the company's suppliers about the balance is from a company that has just entered bankruptcy, credit terms Piepkorn receives. Currently, the company and it is likely this portion of the accounts receivable will never receives terms of net 45. The suppliers have stated that be collected. they would offer new credit terms of 1.5/15, net 40. The Piepkorn typically orders 50 percent of next quarter's discount would begin to be offered on the first day of the projected gross sales in the current quarter, and suppliers are first quarter. What interest rate are the suppliers offering typically paid in 42 days. Wages, taxes, and other costs run the company? Rework the cash budget and short-term about 30 percent of gross sales. The company has a quarterly financial plan assuming you take the credit terms on all interest payment of $135.000 on its long-term debt. orders and the minimum cash balance is $100,000. Also The company uses a local bank for its short-term finan- assume that Piepkorn offers the credit terms detailed in cial needs. It pays 1.5 percent per quarter on all short-term Question 3. S01 PIEPKORN MANUFACTURING Cash Budget Q1 Q2 Q3 04 Target cash balance Net cash Inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) *If you are not familiar with credit policy quotations, see Chapter 20. 11/11/20 PM 47230X 418 612-615.indd 644 First Pages 645 Chapter 18 Short-Term Finance and Planning PIEPKORN MANUFACTURING Short-Term Financial Plan Q1 Q2 Q3 Q4 Target cash 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 repald Ending cash balance Minimum cash balance Cumulative surplus (deficit) Beginning short-term investments Ending short-term investments Beginning short-term debt Ending short-term debt First Pages 644 PART 7 Short Term Financial Planning and Management MINICASE Piepkorn Manufacturing Working Capital Management You have recently been hired by Piepkorn Manufacturing to borrowing and maintains a money market account that pays work in the newly established treasury department. Piepkorn 1 percent per quarter on all short-term deposits. Manufacturing is a small company that produces cardboard Gary has asked you to prepare a cash budget and short- boxes in a variety of sizes for different purchasers. Gary term financial plan for the company under the current policies. Piepkorn, the owner of the company, works primarily in He has also asked you to prepare additional plans based on the sales and production areas of the company. Currently, changes in several inputs. the company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, QUESTIONS the finance area needs work, and that's what you've been 1. Use the numbers given to complete the cash budget and brought in to do. short-term financial plan. The company currently has a cash balance of $305,000, and it plans to purchase new box-folding machinery in the fourth 2. Rework the cash budget and short-term financial plan quarter at a cost of $525,000. The machinery will be purchased assuming Piepkorn changes to a minimum balance of with cash because of a discount offered. The company's policy $100.000 is to maintain a minimum cash balance of $125,000. All sales 3. You have looked at the credit policy offered by Piepkorn's and purchases are made on credit. competitors and have determined that the industry standard Gary Piepkorn has projected the following gross sales for credit policy is 1/10, net 40. The discount will begin to each of the next four quarters: be offered on the first day of the first quarter. You want 10 examine how this credit policy would affect 02 Q3 Q4 budget and short-term financial plan. If this credit policy Gross $1,310,000 $1,390,000 $1,440,000 $1,530,000 is implemented, you believe that 40 percent of all sales will take advantage of it, and the accounts receivable sales period will decline to 36 days. Rework the cash budget and Also, gross sales for the first quarter of the next year are short-term financial plan under the new credit policy and a projected at $1,405,000. Piepkorn currently has an accounts minimum cash balance of $100,000. What interest rate are receivable period of 53 days and an accounts receivable bal- you effectively offering customers? ance of $645,000. Twenty percent of the accounts receivable 4. You have talked to the company's suppliers about the balance is from a company that has just entered bankruptcy, credit terms Piepkorn receives. Currently, the company and it is likely this portion of the accounts receivable will never receives terms of net 45. The suppliers have stated that be collected. they would offer new credit terms of 1.5/15, net 40. The Piepkorn typically orders 50 percent of next quarter's discount would begin to be offered on the first day of the projected gross sales in the current quarter, and suppliers are first quarter. What interest rate are the suppliers offering typically paid in 42 days. Wages, taxes, and other costs run the company? Rework the cash budget and short-term about 30 percent of gross sales. The company has a quarterly financial plan assuming you take the credit terms on all interest payment of $135.000 on its long-term debt. orders and the minimum cash balance is $100,000. Also The company uses a local bank for its short-term finan- assume that Piepkorn offers the credit terms detailed in cial needs. It pays 1.5 percent per quarter on all short-term Question 3. S01 PIEPKORN MANUFACTURING Cash Budget Q1 Q2 Q3 04 Target cash balance Net cash Inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit) *If you are not familiar with credit policy quotations, see Chapter 20. 11/11/20 PM 47230X 418 612-615.indd 644 First Pages 645 Chapter 18 Short-Term Finance and Planning PIEPKORN MANUFACTURING Short-Term Financial Plan Q1 Q2 Q3 Q4 Target cash 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 repald Ending cash balance Minimum cash balance Cumulative surplus (deficit) Beginning short-term investments Ending short-term investments Beginning short-term debt Ending short-term debt