Plepkom Manufacturing Working Capial Management You have recently been hired by Piepkorn Manufacturing to borrowing and maintains a established treasury department, Piepkom I percent per quarter on all short-term deposits. Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different Piepkorn, the owner sales and production areas of the company. Currently, the changes in several inputs Gary has asked you to prepare a cash budget and shornt term financial plan for the company under the current po He has also asked you to prepare additional plans based on purchasers. Gary of the company, works primarily in the ts 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 do. 1. Use the numbers given to complete the cash budget and The company currently has a cash balance of $240,000. and it plans to purchase new box-folding machinery in the 2. Rework the cash budget and short-term financial plan fourth quarter at a cost of $445,000. The machinery will be purchased with cash because of a discount The company's policy is to maintain a minimum cash balance of00 $125,000. All sales and purchases are made on credit. short-term financial plan. ffered. Thesuming Piepkom changes to a minimum balance of 3. You have looked at the credit policy offered by your com- petitors and have determined that the industry standard 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 Gary Piepkorn has projected the following gross sales for each of the next four quarters: Q1 Gross $1,240,000 $1,310,000 $1,370,000 $1,450,000 sales ill 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? You have talked to the company's suppliers ab 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 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 t of the accounts receivable balance 0,000. Twenty percen 4. from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected percent of next quarter's pro- discount would begin to be offered on the first day of the the current quarter, and suppliers are typ- first quarter. What interest rate are the suppliers offering Piepkorn typically orders 50 jected gross sales in ically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sales. The company has a quarterly interest payment of $130,000 on its long-term debt. financial plan assuming you take the credit terms on all orders and the minimum cash balance is $100,000 Also assume that Piepkom offers the credit terms in the prev The company uses a local bank for its short-term finan- ial needs. It pays 1.5 percent per quarter on all short-term ious question. PIEPKORN MANUFACTURING Cash Budget Q1 Q2 Q3 Q4 get cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)
