You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a vari- ety of sizes for dferent purchasers. Gary Piepkorn, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox and all payables in another. Because of the disorganized system, the nance area needs work, and thats what youve been brought in to do. The company currently has a cash balance of $265,000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $490,000. The machinery will be purchased with cash

because of a discount fered. The companys policy is to maintain a minimum cash balance of $137,000. All sales and purchases are made on credit. Gary Piepkorn has projected the following gross sales for each of the next four quarters:

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

Also, gross sales for the rst quarter of next year are projected at $1,420,000. Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $690,000. Twenty percent 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.

Piepkorn typically orders 50% of next quarters 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 $140,000 on its long-term debt. The company uses a local bank for its short-term financial needs. It pays 1.5% per quarter in all short-term borrowing and maintains a money market account that pays 1% per quarter on all short-term deposits. Gary has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs. The following questions introduce refinements to the short-term financial plan reflecting changes in the minimum cash balance, credit policy, and credit terms from suppliers. For each question, rework the cash budget and determine the incremental cash generated or expended due to the change. Based on your incremental cash calculation, state your recommendation on whether the change should be implemented. In your analysis, assume that all the preceding changes are in place.

Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $140,000. 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, 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 accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $140,000. What interest rate are you effectively offering customers? 4. You have talked to the companys suppliers about the credit terms Piepkorn receives. 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 in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $110,000. Also assume that Piepkorn offers the credit terms in the previous question. ( CREATE A CASH BUDGET AND SHORT -TERM FINANCIAL PLAN)