You have recently been hired by Middleton Manufacturing to work in the newly established treasury department. Middleton Manufacturing is a small company with disorganized systems and the finance area needs work.

The company currently has a beginning cash balance of $100,000 and plans to buy new machinery during the fourth quarter for $500,000, paying cash. The company maintains a minimum cash balance of $100,000 and invests any excess cash in a money market account. The company borrows short-term from CIBC, paying 1.5 percent interest per quarter on all short-term borrowing, and receives 1% per quarter from any balances in its money market account. The company pays $110,000 of interest each quarter for its long-term debt.

All sales and purchases are made on credit. Credit sales for each of the next four quarters:

Gross sales Q1 1,360,000 Q2 1,440,000 Q3 1,500,000 Q4 1,600,000

The forecasted credit sales for Q1 of next year is $1,420,000. Middleton currently has an average collection period of 45 days and beginning accounts receivable of $500,000. Twenty percent of the beginning balance of accounts receivable balance is from a company that has just entered bankruptcy. This account receivable will not be collected.

Purchases are done one quarter in advance and represent 50% of the next quarters sales (cost of inventory sold is 50% of sales). Suppliers are paid after 30 days. Wages, taxes, and other costs average 30 percent of gross sales and are paid in cash in the same quarter when they occur.

Required: You have been asked to prepare a cash budget and short-term financial plan for the company under the current policies.