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 shoc box 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 $305,000, and it plans to purchase new box-folding machinery in the founth quarter at a cost of $525,000. The machinety will be purchased with cash because of a discount offerod. The company's policy is to maintain a minimum cash balance of $125,000. All sales and purchases are made on credit. Gary Piepkorn has projected the following gross sales for each of the next four quarters: Also, gross soles for the finst quarier of the neut year are projected at $1,405,000. Piepkom currently has an accounts receivable period of 53 days and an accounts receivable bel. ance of $645,000. Twenty percent of the accounts receivabic 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 ofders 50 percent of next quarter's projected gross sales in the current quarter, and suppliets are typically paid in 42 days. Wages, taxes, and ocher costs rus about 30 pereent of gross sales. The company has a quarterly interest payment of $135,000 on its long-term debt. The company uses a local bank for its short-term financial needs. ft pays 15 peroeat per quarter on all short-term borrowing and maintains a moncy market account that pays 1 pereent per quarter on all short-lerm deponits. Gary has acked you to prepare a cash budget and shortterm financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. 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 Piepkern changes to a minimum balance of $100,000. 3. You have looked at the credit policy offered by Piepkorn's competitors and have determined that the induatry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first qaarter. You want to examine bow this crodit policy woold affect the cash badget 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 bulance of $100,000. What interest rate are you effoctively offering customen? 4. You have talked to the company's supptiers about the credit terms Pieploen roceives. Currtently, the compuny receives terms of aet 45 . The supplien hive stated that they would offer sew credit terms of 1.5/15, net 40 . The discount would begin to be offerod on the first day of the first quanter. What interest nte are the suppliens offering the company? Rework the cant bodpet and short-term financial plan assuming you take the credit terms on all orders and the minimum canth bulance is $100,000. Also zosume that Pieplors offers the crodit terms detailed in Question 3