Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Turban Hill Manufacturing Working Capital Management You have recently been hired by Turban Hill Manufacturing to work in the newly established treasury department. Turban Hill
Turban Hill Manufacturing Working Capital Management
You have recently been hired by Turban Hill Manufacturing to work in the newly established treasury department. Turban Hill Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers. Gary Turban Hill, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoe box and all payables in another. Because of the 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 $ and it plans to purchase new boxfolding machinery in the fourth quarter at a cost of $ The machinery will be purchased with cash because of a discount offered. The company's policy is to maintain a minimum cash balance of $ All sales and purchases are made on credit.
Gary Turban Hill has projected the following gross sales for each of the next four quarters:
Q Q Q Q
Gross sales $ $ $ $
Also, gross sales for the first quarter of next year are projected at $ Turban Hill currently has an accounts receivable period of days and an accounts receivable balance of $ Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected.
Turban Hill typically orders percent of next quarter's projected gross sales in the current quarter, and suppliers are typically paid in days. Wages, taxes, and other costs run about percent of gross sales. The company has a quarterly interest payment of $ on its longterm debt.
The company uses a local bank for its shortterm financial needs. It pays percent per quarter in all shortterm borrowing and maintains a money market account that pays percent per quarter on all shortterm deposits.
Gary has asked for a cash budget and shortterm financial plan for the company under the current policies. He has also asked for additional plans based on changes in several inputs.
QUESTIONS
Use the numbers given to complete the cash budget and shortterm financial plan.
You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is net 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 shortterm financial plan. If this credit policy is implemented, you believe that percent of all sales will take advantage of it and the accounts receivable period will decline to days. Rework the cash budget and shortterm financial plan under the new credit policy and a minimum cash balance of $ What interest rate are you effectively offering customers?
Turban Hill Manufacturing
Cash Budget
Q Q Q Q
Target Cash Balance
Net Cash Inflow
Ending Cash Balance
Minimum Cash Balance
Cumulative Surplus Deficit
Turban Hill Manufacturing
ShortTerm Financial Plan
Q Q Q Q
Target Cash Balance
Net Cash Inflow
New ShortTerm Investment Income
Short Term Investment Sold
New ShortTerm Borrowing
Interest on Short Term Borrowing
Short Term borrowing repaid
Ending Cash Balance
Minimum Cash Balance
Cumulative Surplus Deficit
Beginning Shortterm Investments
Ending Short term investments
Minimum Cash Balance
Cumulative Surplus Deficit
Beginning shortterm investments
Beginning shortterm debt
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started