Using the data, explain how the changes to cash sales and target cash balance would impact the need for external funds each month. What are the potential advantages and disadvantages of implementing the actions without adjusting overall sales? Your response should include a discussion of the goals of cash management, the goal of each action individually, as well as the combined effect on the external funds needed. What additional actions can management take to improve the cash budget for the remaining years of the 4-year operating plan (2021,2022, 2023) that can increase FCF and intrinsic value?

1. Increase cash sales from 1% to 15%.

2. Triple the percentage of customers that pay during the month after the sale.

3. Increase the percentage of customers that pay during the second month after the sale from 7.5% to 35%

4. Lower the percentage of customers that pay during the third month after the sale from 64.9% down to 25%.

5. Reduce the desired level of cash (target cash balance) from $100 million to $50 million.

		Q4 2019			2020
		Oct-19	Nov-19	Dec-19	Jan-20	Feb-20	Mar-20	Apr-20	May-20	Jun-20	Jul-20	Aug-20	Sep-20	Oct-20	Nov-20	Dec-20
Anticipated level of sales		$63.64	$90.09	$110.00	$130.00	$110.00	$90.00	$75.00	$70.00	$67.00	$53.10	$48.80	$56.00	$70.00	$99.10	$121.00
Estimated labor and raw materials					$100.00	$90.00	$72.00	$50.40	$32.76	$27.85	$26.45	$25.13	$35.18	$56.60	$80.37	$99.90
Cash sales	1.00%
Collections during month after sale	11.50%
Collections during second month after sale	7.50%
Collections during third month after sale	64.90%
Other cash receipt - Treasuries (Apr)	$0.46
Target cash balance	$100.00
Interest, rent and administrative expenses	$7.19
Other cash disbursement - income tax payments (Sep)	$17.98
Other cash disbursement - retire loan (Jan)	$7.90
Cash on hand (Dec 31, 2019	$41.60
Prepare a monthly cash budget for 2020.
		Q4 2019			2020
		Oct-19	Nov-19	Dec-19	Jan-20	Feb-20	Mar-20	Apr-20	May-20	Jun-20	Jul-20	Aug-20	Sep-20	Oct-20	Nov-20	Dec-20
Anticipated Sales
Sales (gross)		$ 63.64	$ 90.09	$ 110.00	$ 130.00	$ 110.00	$ 90.00	$ 75.00	$ 70.00	$ 67.00	$ 53.10	$ 48.80	$ 56.00	$ 70.00	$ 99.10	$ 121.00
Cash sales		$ 0.64	$ 0.90	$ 1.10	$ 1.30	$ 1.10	$ 0.90	$ 0.75	$ 0.70	$ 0.67	$ 0.53	$ 0.49	$ 0.56	$ 0.70	$ 0.99	$ 1.21
Collections
During 1st month after sale					$ 12.52	$ 14.80	$ 12.52	$ 10.25	$ 8.54	$ 7.97	$ 7.63	$ 6.05	$ 5.56	$ 6.38	$ 7.97	$ 11.28
During 2nd month after sale					$ 6.69	$ 8.17	$ 9.65	$ 8.17	$ 6.68	$ 5.57	$ 5.20	$ 4.97	$ 3.94	$ 3.62	$ 4.16	$ 5.20
During 3rd month after sale					$ 40.89	$ 57.88	$ 70.68	$ 83.53	$ 70.68	$ 57.83	$ 48.19	$ 44.98	$ 43.05	$ 34.12	$ 31.35	$ 35.98
Other cash receipts								$ 0.46
Total Cash Receipts					$ 61.40	$ 81.95	$ 93.75	$ 103.15	$ 86.60	$ 72.03	$ 61.54	$ 56.48	$ 53.11	$ 44.82	$ 44.47	$ 53.67
Disbursements
Variable: Labor and raw materials					$ 100.00	$ 90.00	$ 72.00	$ 50.40	$ 32.76	$ 27.85	$ 26.45	$ 25.13	$ 35.18	$ 56.60	$ 80.37	$ 99.90
Fixed: interest, rent, and admin expenses					$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19	$ 7.19
Other cash disbursements					$ 7.90								$ 17.98
Total cash disbursements					$ 115.09	$ 97.19	$ 79.19	$ 57.59	$ 39.95	$ 35.04	$ 33.64	$ 32.32	$ 60.35	$ 63.79	$ 87.56	$ 107.09
Cash Surplus (or Loan Requirement)
Cash gain (or loss) during the month					$ (53.69)	$ (15.24)	$ 14.56	$ 45.56	$ 46.65	$ 36.99	$ 27.90	$ 24.16	$ (7.24)	$ (18.97)	$ (43.09)	$ (53.42)
Cash position at beginning of month					$ 41.60	$ (12.09)	$ (27.33)	$ (12.76)	$ 32.80	$ 79.44	$ 116.44	$ 144.34	$ 168.51	$ 161.26	$ 142.29	$ 99.20
Cash position at end of month					$ (12.09)	$ (27.33)	$ (12.76)	$ 32.80	$ 79.44	$ 116.44	$ 144.34	$ 168.51	$ 161.26	$ 142.29	$ 99.20	$ 45.78
Target cash balance					$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)	$ (100.00)
Surplus cash or loan needed					$ (112.09)	$ (127.33)	$ (112.76)	$ (67.20)	$ (20.56)	$ 16.44	$ 44.34	$ 68.51	$ 61.26	$ 42.29	$ (0.80)	$ (54.22)