You have been appointed as the new Chief Financial Officer of ABC Aluminum, a Jebel Ali manufacturer of specialized aluminum foils. You are responsible for constructing financial forecasts and for evaluating the financial feasibility of new projects.

You must prepare a financial forecast for 2021, ABCs 2020 sales were AED 891,600/- and the marketing department is forecasting a 20% increase for 2021. The company was operating at full capacity in 2020. The 2020 financial statements, plus some other data, are given below:

Income Statement as of 31/12/2020 (AED)
Sales	891,600
COGS	(693,600)
Gross Profit	198,000
SG&A Expenses	(18,240)
Earnings before interest and taxes	179,760
Interest paid	(13,400)
Taxable Income	166,360
Taxes	(58,226)
Net Income	108,134
Dividends	35,684
Addition to Retained Earnings	72,450

Balance Sheet as of 31/12/2020 (AED)
Current Assets		Current Liabilities
Cash	24,280	Accounts Payable	65,200
Accounts Receivable	37,070	Notes Payable	16,320
Inventory	83,400
Total Current Assets	144,750	Total Current Liabilities	81,520
Fixed Assets		Long-term Liabilities
Net Plant and Equipment	396,500	Long-term Debt	155,000
		Owner's Equity
		Common Stock	130,000
		Retained Earnings	174,730
		Total Owners Equity	304,730
Total Assets	541,250	Total Liabilities and Owner's Equity	541,250

• Sales for 2021 are projected to grow by 20 percent.
• Interest expense will remain constant
• Tax rate and the dividend payout rate will also remain constant.

1. (5 points) Knowing that you are the firms new CFO, what current asset investment policy would you adopt? Explain.
2. (5 points) Suppose you are forecasting the cash budget, why would you want to maintain a relatively high amount of cash?