The cash budget is considered the primary forecasting tool when firms try to estimate their cash flows and figure out if they are likely to need additional cash flows or to generate surplus cash.

Consider the case of Mooney Equipment:

Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters $($one year plus the first quarter of the next year$).$ The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table $($in millions of dollars$)$:

Q$1$

Q$2$

Q$3$

Q$4$

Q$5$

Sales $$1,210$ $$1,510$ $$1,560$ $$1,360$ $$1,610$

Total cash collections $$1,210$ $$1,260$ $$1,310$ $$1,310$

You also have the following information about Mooney Equipment:

$$ In any given period, Mooney$$s purchases from suppliers generally account for $78\%$ of the expected sales in the next period, and wages, supplies, and taxes are expected to be $15\%$ of next period$$s sales.

$$ In the third quarter, Mooney expects to expand one of its plants, which will require an additional $$1,078$ million investment.

$$ Every quarter, Mooney pays $$55$ million in interest and dividend payments to long$-$term debt and equity investors.

$$ Mooney prefers to keep a minimum target cash balance of at least $$16$ million at all times.