Question $4($Cash Budget$)$

Global Medical Appliances Limited $($GMAL$)$ manufactures medical appliances for hospital medical facilities around the world. In the past few years, the company has been struggling to survive in a highly competitive market. Matthew Moir was employed as operations director at the beginning of January $2024,$ and he has discovered that the current manufacturing system is outdated, requiring a complete overhaul of the manufacturing plant to turn around the fortunes of the company.

GMAL's board of directors has concluded that they would have to take Matthew at his word to make use of the latest technology to become more competitive. They have appointed a renowned marketing company to help promote the medical appliances, given the expected cost advantage from the business process re$-$engineering, which could give rise to a more competitive pricing structure. The marketing costs will be $3,400,000,$ payable over $4$ months in equal instalments commencing in July $2024.$

Being a medical product that is distributed globally and administered to millions of people, quality is of cardinal importance to customers. Latest technological advancements have seen the development of manufacturing and packing machines capable of operating at very high speeds and equipped with artificial intelligence to monitor and adjust the manufacturing process to meet the exacting standards required in the medical appliance industry. Machines of this nature cost $600$ million and can produce up to $200,000$ appliances per month. These machines can be leased over $5$ years at a premium of $11\%$ per annum on the purchase price. One such machine is available and could be installed by the end of June $2024.$ However, the company has decided to purchase the machine and to raise a $450,000,000$ loan with the bank, repayable at $9\%$ per annum for $3$ years. The interest and capital repayments commence in the month of July $2024.$ If the company decides to lease the machine, then the bank will not advance the $450$ million loan to the company because the company would be considered to have debt commitments beyond their ability to service the debt. The bank has indicated that there may be room for a larger loan up to $470,000,000.$ The company has no overdraft facilities at present.

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Required:

$($a$)$ Prepare the cash budget for GMAL for the third quarter $($July$-$

$(24$ marks$)$ September$)$ of $2024.$

$($b$)$ Perform an adjustment to the cash budget to reflect the revised $(10$ marks$)$ closing balances for each month that will apply where the purchase arrangements for the machine are replaced by the lease of the machine. Show your workings.

$($c$)$ Assuming that the cash balance is insufficient to fund the $(6$ marks$)$ project startup working capital and that, by the end of July there is a negative balance in the closing balance of the cash budget, what actions could GMAL take to remedy the situation? Identify three different actions that could see the cash balance for July turned positive.

$($Total $40$ marks$)$

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