Exercise 4 (Short-Term Finance and Planning)
You are hired as a financial manager and your first task is to establish the cash budget of your firm.
You gathered the following information.
The firm receives all income from sales
Ø Sales estimates (in millions)
l Q1 = 1,000; Q2 = 1,250; Q3 = 1,500; Q4 = 2,000; Q1 next year = 1,200
Ø Accounts receivable
l Beginning receivables = $3000
l Average collection period = 45 days
Ø Accounts payable
l Purchases = 60% of next quarter’s sales
l Beginning payables = 1,200
l Accounts payable period is 45 days
Ø Other expenses
l Wages, taxes, and other expense are 25% of sales
l Interest and dividend payments are $100
l A major capital expenditure of $500 is expected in the second quarter
Ø The initial cash balance is $100 and the company maintains a minimum balance of $50
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