WORKING CAPITAL MANAGEMENT

You have recently been hired to work in your company$$s newly established treasury

department. The company is a small company that produces cardboard boxes in a variety of

sizes for different purchases. 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 have been brought in to do$.$

The company currently has a cash balance of $$305,000$ and it plans to purchase new box$-$folding

machinery in the fourth quarter at a cost of $$525,000.$ The machinery will be purchased with

cash because of a discount offered. The company$$s policy is to maintain a minimum cash

balance of #$125,000.$ All sales and purchases are made on credit.

The owner has projected the following gross sales for each of the next four quarters.

Gross Sales: Q$1$: $1,310,000$ Q$2$: $1,390,000$ Q$3$: $1,440,000$ Q$4$: $1,530,000$

Also, gross sales for the first quarter of the next year are projected at $$1,405,000.$ The company

currently has an accounts receivable period of $53$ days and an accounts receivable balance of

$$645,000.20\%$ 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.

The company typically orders $50\%$ of the next quarter$$s projected gross sales in the current

quarter, and suppliers are typically paid in $42$ days. Wages, taxes and other costs run about $30\%$

of gross sales. The company has a quarterly interest payment of $$135,000$ on its long tern debt.

The company uses a local bank for its short$-$term financial needs. It pays $1\mathrm{.}5\%$ per quarter on all

short$-$term borrowing and maintains a money market accounts that pays $1\%$ per quarter on all

short$-$term deposits.

You have been asked to prepare a cash budget and short$-$term financial plan for the company

under the current policies. You have also been asked to prepare additional$/$alternative plans

based on changes in several inputs.

Please fill out the following using the information above. $($your name$)$ MANUFACTURING

CASH BUDGET

Q$1$ Q$2$ Q$3$ Q$4$

Target Cash Balance

Net Cash inflow

Ending cash balance

Minimum Cahs balance

Cumulative surplus$/($deficit$)$

$($your name$)$ MANUFACTURING

SHORT TERM FINANCIAL PLAN

Q$1$ Q$2$ Q$3$ Q$4$

Target Cash Balance

Net Cash inflow

New short term investments

Income from short term investments

Short term investments sold

Mew short term borrowing

Interest on short term borrowing

Short term borrowing repaid

Ending Cash Balance

Minumum Cash Balance

Cumulative surplus$/($deficit$)$

Beginning short term investments

Ending short term investments

Beginning short term debt

Ending short term debt