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. Respond to the following questions. Written responses must comprise at least three complete sentences, with proper grammar and punctuation. Cite any referenced materials using APA format. n the Excel spreadsheets provided, all calculations that support your answers must be shown as ormulae. 1. Use the numbers given to complete the cash budget and short-tern financial plan in Excel. (Sheet 1) 2. Rework the cash budget and short-term financial plan assuming the minimum balance is changed to $100,000 (Sheet 2) 3. You have looked at the credit policy offered by the competition and determined that the industry standard credit policy is 1/19 net 40 . 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 short-term financial plan. If this credit policy is implemented, you believe that 40% of all sales will take advantage of it, and the outstanding accounts receivable period will decline to 36 days. a. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $100,000. (Sheet 3 ) b. What interest rate are you effectively offering your customers? 4. You have talked to the company's suppliers about the credit terms that you receive. Currently, the company receives terms of net 45 . The suppliers have stated that they would offer new credit terms of 1.5/15, net 40 . The discount would begin to be offered on the first day of the first quarter. a. What interest rate are suppliers offering the company? b. Rework the cash budget and short-term financial plan assuming you take the offered credit terms on all orders and the minimum cash balance is $100,000. Also assume the company offers the credit terms detailed in Question 3. (Sheet 4) 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. Respond to the following questions. Written responses must comprise at least three complete sentences, with proper grammar and punctuation. Cite any referenced materials using APA format. n the Excel spreadsheets provided, all calculations that support your answers must be shown as ormulae. 1. Use the numbers given to complete the cash budget and short-tern financial plan in Excel. (Sheet 1) 2. Rework the cash budget and short-term financial plan assuming the minimum balance is changed to $100,000 (Sheet 2) 3. You have looked at the credit policy offered by the competition and determined that the industry standard credit policy is 1/19 net 40 . 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 short-term financial plan. If this credit policy is implemented, you believe that 40% of all sales will take advantage of it, and the outstanding accounts receivable period will decline to 36 days. a. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $100,000. (Sheet 3 ) b. What interest rate are you effectively offering your customers? 4. You have talked to the company's suppliers about the credit terms that you receive. Currently, the company receives terms of net 45 . The suppliers have stated that they would offer new credit terms of 1.5/15, net 40 . The discount would begin to be offered on the first day of the first quarter. a. What interest rate are suppliers offering the company? b. Rework the cash budget and short-term financial plan assuming you take the offered credit terms on all orders and the minimum cash balance is $100,000. Also assume the company offers the credit terms detailed in Question 3. (Sheet 4)
