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 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 boxes in a variety of sizes for different purchasers. Gary term financial plan for the company under the curreni Piepkorn, the owner of the company, works primarily in the He has also asked you to prepare additional plans based cn sales and production areas of the company. Currently, the changes in several inputs. company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, the finance QUESTIONS area needs work, and that's what you've been brought in to Gary has asked you to prepare a cash bud get and short- 1. Use the numbers given to complete the cash budget and 2. Rework the cash budget and short-term financial plan 3. You have looked at the credit policy offered by your com do. The company currently has a cash balance of $240,000 and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $445,000. 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. short-term financial plarn assuming Piepkorn changes to a minimum balance $100,000. Gary Piepkorn has projected the following gross sales for each of the next four quarters petitors and have determined that the indus 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 $100,000. What interest rate are you effectively offering customers try standard Q3 Q4 Gross $1,240,000 $1,310,000 $1,370,000 $1,450,000 Also, gross sales for the first quarter of next year are projected at $1,290,000. Piepkorn currently has an accounts receiv able period of 53 days and an accounts receivable balance of e 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 0,000. Twenty percent of th 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 on 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 $100,000. Also assume that Piepkorn offers the credit terms in the previous question collected. Piepkorn typically orders 50 percent of next quarter's pro- jected gross sales in the current quarter, and suppliers are typ- ally paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest yment of $130,000 on its long-term debt The company uses a local bank for its short-term finan cial needs. It pays 1.5 percent per quarter on all short-term PIEPKORN MANUFACTURING Cash Budget Q4 Target cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)