Question No$.3($Keafer Manufacturing Working Capital Management$)$ hal $812.$

You have recently been hired by Keafer Manufacturing to work in its established treasury department.

Keafer Manufacturing is a small company that produces highly customized cardboard boxes in a variety

of sizes for different purchasers. Adam Keafer, the owner of the company, works primarily in the sales

and production areas of the company. Currently, the company basically puts all receivables in one pile

and all payables in another, and a part$-$time bookkeeper periodically comes in and attacks the piles.

Because of this 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 $$149,500$ and it plans to purchase new machinery in the

third quarter at a cost of $$260,000.$ The purchase of the machinery will be made with cash because of the

discount offered for a cash purchase. Adam wants to maintain a minimum cash balance of $$90,000$ to

guard against unforeseen contingencies. All of Keafer's sales to customers and purchases from suppliers

are made with credit and no discounts are offered or taken.

The company had the following sales each quarter of the year just ended:

After some research and discussions with customers, you're projecting that sales will be $8\%$ higher in each

quarter next year. Sales for the first quarter of the following year are also expected to grow at $8\%.$ You

calculate that Keafer currently has an accounts receivable period of $57$ days and an accounts receivable

balance of $$553,000.$ However, $10\%$ of the accounts receivable balance is from a company that has just

entered bankruptcy, and it is likely that this portion will never be collected.

You've also calculated that Keafer typically orders supplies each quarter in the amount of $50\%$ of the next

quarter's projected gross sales and suppliers are paid in $53$ days, on average.

Wages, taxes, and other costs run about $25\%$ of gross sales. The company has a quarterly interest payment

of $$148,000$ on its long$-$term debt.

Finally, the company uses a local bank for its short$-$term financial needs. It currently pays $1\mathrm{.}2\%$ per quarter

on all short$-$term borrowing and maintains a money market account that pays $0\mathrm{.}5\%$ per quarter on all

short$-$term deposits.

Adam has asked you to prepare a cash budget and short$-$term financial plan for the company under the

current policies. He also has asked you to prepare additional plans based on changes in several inputs.

$1.$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 Keafer changes to a minimum

cash balance of $$70,000.$

$3.$ rework the sales budget assuming an $11\%$ growth rate in sales and a $5\%$ growth rate in sales.

Assume a $$90,000$ target cash balance.

$4.$ assuming the company maintains its target cash balance at $$90,000,$ what sales growth rate would

result in a zero need for short$-$term financing? To answer this question, you may need to set up a

spreadsheet and use the "Solver" function.