You have recently been hired to work in your companys 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 thats 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 companys 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. Q1 1,310,000 Q2 1,390,000 Q3 1,440,000 Q4 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 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 $135,000 on its long tern debt. The company uses a local bank for its short-term financial needs. It pays 1.5% 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.

Estimated cash receipt from

Collections of Accounts Receivables

Interest Revenue

Total Cash Receipt

Less: Estimated Cash Payments for

Manufacturing Costs

Wages, Taxes, and other Cost

Interest Payment

Total Cash Payment

Cash Increase (Decrease)

Cash Balance at Beginning of Quarter

Less: Minimum Cash Balance

Excess (Deficiency)

*Minimum cash balance of $125,000

*Current cash balance: $305,000

*Purchase a machinery in the fourth quarter and will pay cash $525,000 (so its a negative cash flow at Q4)

*Accounts Receivables:

Current balance $645,000

20% will never be collected

All sales are made on credit (Accounts Receivables) as followings

Q1: $1,310,000

Q2: $1,390,000

Q3: $1,440,000

Q4: $1,530,000

Accounts Receivables period: 53 days

*Accounts Payables:

Order 50% next quarters projected gross sale in current quarter

Paid in 42 days

*Wages, taxes and other costs: 30% gross sales

*Quarterly interest payment of $135,000 on its long-term debt