MINICASE Keafer Manufacturing Working Capital Management Vou have recently been hired by Keafer Manufac- balance is from a company that has just enter turing to work in its established treasury depart- bankruptcy, and it is likely that this portion will ment. Keafer Manufacturing is a small company never be collected. that produces highly customized cardboard boxes in a variety of sizes for different purchasers. Adam supplies each quarter in the amount of 50 percent Keafer, the owner of the company, works primarily of the next quarter's projected gross sales, and sup in the sales and production areas of the company. pliers are paid in S3 days on average. Currently the company ables in one pile and all payables in another, and The company has a quarterly interest payment of a part-time bookkee attacks the piles. Because of this tem, the finance area needs work. and that's what rently pays 1.2 percent per quarter on a you've been brought in to do. ed You've also calculated that Keafer typically orders Wages, taxes, basically puts all receiv and other costs run about 25 percent of gross sales. per periodically comes in and $185.000 on its long-term debt. Finally. the company sorganized sys uses a bank for its short-term financial needs. It cur- borrowing and maintains a money market account The company currently has a cash balance of that pays 0.5 percent per quarter on all short-term 210,000, and it plans to purchase new machin- deposits. ery in the third quarter at a cost of $390,000. The purchase of the machinery will be made with cash and short-term financial plan for the company because of the discount offered for a cash purchase. under the current policies. He has also asked you to Adam wants to maintain a minimum cash balance prepare additional plans based on changes in sev of $135000 to guard against unforeseen contingen eral inputs. cies. All of Keafer's sales to customers and purchases from suppliers are made with credit, and no dis counts are offered or taken Adam has asked you to prepare a cash budget 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term finan The company had the following sales each quar- ter of the year just ended 02 cial plan assuming Keafer changes to a mini mum cash balance of $90.000. 03 04 3. Rework the sales budget assuming an 11 per- cent growth rate in sales and a 5 percent growth rate in sales. Assume a $135.000 target cash balance. sales $1,102,000 $1,141,000 $1,125,000 $1,063,000 After some research and discussions with cus- tomers, youre projecting that sales will be 8 percent higher in each quarter next year. Sales for the first quarter of the following year are also expected to grow at 8 percent. You calculate that Keafer cur- rently has an accounts receivable period of 57 days and an accounts receivable balance of $675.000. However. 10 percent of the accounts receivable 4. Assuming the company maintains its target cash balance at $135.000, what sales growth rate would result in a zero need for short-term financing? Explain what your answer implies about the likely need for short-term financing. To answer these questions, you may need to set up a spreadsheet and use the "Solver" function. MINICASE Keafer Manufacturing Working Capital Management Vou have recently been hired by Keafer Manufac- balance is from a company that has just enter turing to work in its established treasury depart- bankruptcy, and it is likely that this portion will ment. Keafer Manufacturing is a small company never be collected. that produces highly customized cardboard boxes in a variety of sizes for different purchasers. Adam supplies each quarter in the amount of 50 percent Keafer, the owner of the company, works primarily of the next quarter's projected gross sales, and sup in the sales and production areas of the company. pliers are paid in S3 days on average. Currently the company ables in one pile and all payables in another, and The company has a quarterly interest payment of a part-time bookkee attacks the piles. Because of this tem, the finance area needs work. and that's what rently pays 1.2 percent per quarter on a you've been brought in to do. ed You've also calculated that Keafer typically orders Wages, taxes, basically puts all receiv and other costs run about 25 percent of gross sales. per periodically comes in and $185.000 on its long-term debt. Finally. the company sorganized sys uses a bank for its short-term financial needs. It cur- borrowing and maintains a money market account The company currently has a cash balance of that pays 0.5 percent per quarter on all short-term 210,000, and it plans to purchase new machin- deposits. ery in the third quarter at a cost of $390,000. The purchase of the machinery will be made with cash and short-term financial plan for the company because of the discount offered for a cash purchase. under the current policies. He has also asked you to Adam wants to maintain a minimum cash balance prepare additional plans based on changes in sev of $135000 to guard against unforeseen contingen eral inputs. cies. All of Keafer's sales to customers and purchases from suppliers are made with credit, and no dis counts are offered or taken Adam has asked you to prepare a cash budget 1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term finan The company had the following sales each quar- ter of the year just ended 02 cial plan assuming Keafer changes to a mini mum cash balance of $90.000. 03 04 3. Rework the sales budget assuming an 11 per- cent growth rate in sales and a 5 percent growth rate in sales. Assume a $135.000 target cash balance. sales $1,102,000 $1,141,000 $1,125,000 $1,063,000 After some research and discussions with cus- tomers, youre projecting that sales will be 8 percent higher in each quarter next year. Sales for the first quarter of the following year are also expected to grow at 8 percent. You calculate that Keafer cur- rently has an accounts receivable period of 57 days and an accounts receivable balance of $675.000. However. 10 percent of the accounts receivable 4. Assuming the company maintains its target cash balance at $135.000, what sales growth rate would result in a zero need for short-term financing? Explain what your answer implies about the likely need for short-term financing. To answer these questions, you may need to set up a spreadsheet and use the "Solver" function