Short-Term Finance and Planning

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.

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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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