Working Capital Management Graded Assignment | Read Chapter 15 | Back to Assignment Due Wednesday 12.05.18 at 11:45 PM Do No Harm: 3/23 Attempts: 3 6. Cash budget Wallace Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared Aa Aa the company's operating cash budget for the last six months of the year The following budget assumptions were used to construct the budget: Wallace's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Wallace's sales are made on credit with terms of 2/10, net 30. Wallace's experience is that 15% is collected from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 45% of Wallace's finished product. The purchases are generally made one month in advance of the sale, and Wallace pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $594 ($1,320 mix0.45), and this amount would be paid in July. . Other cash expenses include wages and salaries at 15% of sales, monthly rent of $48 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September Assume that Wallace's targeted cash balance is $300, and the estimated cash on hand on July 1 is $343. Use the preceding information to fill in the missing amounts in the following cash budget. Use the preceding information to fill in the missing amounts in the following cash budget. Wallace Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) June August September $1,236 567 August September October November December $1,260 583 $1,296 594 Credit sales $1,140 $1,176 $1,200 $1,212 556 $1,320 Credit purchases October November December Cash receipts Collections from this month's sales Collections from previous month's sales Collections from sales two months previously 178 900 118 $1,196 182 909 120 $1,211 185 927 121 $1,233 191 945 124 $1,260 972 126 $1,292 Total cash receipts Cash disbursements Payments for credit purchases Wages and salaries 540 545 556 185 583 194 594 198 180 182 Other expenses axes 1,200 $2,051 Payment for plant construction Total cash disbursements Net cash flow (Receipts -disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash $898 $836 $890 $906 $293 137 $430 300 $130 $370 430 $800 300 $500 $386 800 $1,186 300 $886 $274 $360 -$840 $617 300 $317 300 $677 Use the information provided in the budget to complete the following sentences. Wallace Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Wallace will to end the year with a cash of $ and a cash of $ Wallace Company will want a credit line of at least $ to cover the month with the greatest shortfall, and the financial managers can in short-term marketable securities. tell the bank to expect that they will be able to invest up to $