Question: You are a financial analyst in the Bridgetown Foundationa public service agency in Chicago that provides specialized mental care services to the poor. The foundations financial resources are mainly from various state and federal grants and business or individual donations. In a recent financial audit, an independent auditor suggested the foundation explore the possibility of investing in the market as an additional revenue source. You are assigned the responsibility of analyzing the foundations cash flows to determine whether such a possibility exists and, if it does, how much the founda- tion should invest and what the investment strategy should be. You pull out the cash flow information for the last three years as shown in Table 8.7.

1. Create a cash budget forth next year. Use the proper forecasting techniques (from Chapter 1) and defend your reasoning for your choice of technique. (Use SMA (i.e., average the three provided years) as the forecasting technique in question #1.)

2. Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance.

3. Do you see any investment opportunities for the foundations cash? If yes, develop an investment strategy for the foundation. Use the cash balance and the Miller-Orr Model to make a recommendation that states either: 1) how much cash should be invested, 2) no action is necessary, or 3) how much cash is needed for replenishment.

Monthly Cash Flows: Bridgetown Foundation (\$) Table 8.7 (continued) Monthly Cash Flows: Bridgetown Foundation (\$) Table 8.7 (continued)