Note: There are two parts to this learning team assignment; Part 1 was completed

Question

Note: There are two parts to this learning team assignment; Part 1 was completed in Week 3.

Review the "Precision Machines" document and spreadsheet.

Prepare a cash budget for Precision Machines in Microsoft® Excel®.    

Create a 1,225-word strategic analysis and include the following:

Recommend a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.

Explain two economic and market forces that will impact the financial plan of this company.

Precision Machines is preparing a financial plan for the next six months to determine the financial needs of the company. The historical analysis of the company’s sales shows that the company’s total sales are 30% cash sales and 70% credit sales. Further analysis of credit sales shows that the company receives 50% of the credit sales one month after the sale and the remaining 50% in the second month after the sale. This means the cash collections from sales are 30% in the first month of the sale, 35% in the second month, and 35% in the third month.

The materials purchased by the company amounts to 50% of the sales for the month. The company pays for the purchases one month after the initial purchase. The company likes to maintain a cash balance of $5,000. The cost of borrowing is 10%. The company plans to pay off the loan whenever there is a surplus and borrow when there is a deficit.

The attached spreadsheet shows revenues (sales), expenses, capital expenditures, and other expenses for Precision Machines’ next six months. Using the information given on the spreadsheet, prepare a cash budget for January through June and determine the cash surplus, deficit, and the financing needs of the company.  

November December January February March April May June Annual Cost of borrowing 10.00% Minimum Cash Balance $5,000.00 Beginning Cash Balance $7,500.00 Revenues (Sales) $40,000.00 $50,000.00 $48,000.00 $55,000.00 $35,000.00 $50,000.00 $65,000.00 $40,000.00 Cash Collections November December January February March April May June First Month (30%) Second Month (35%) Third Month (35%) Total Collections

Explanation / Answer

November December January February March April May June Annual Cost of borrowing 10.00% Minimum Cash Balance $5,000 Beginning Cash Balance $7,500 Revenues (Sales) $40,000 $50,000 $48,000 $55,000 $35,000 $50,000 $65,000 $40,000 Cash Collections November December January February March April May June First Month (30%) $15,000 $14,400 $16,500 $10,500 $15,000 $19,500 $12,000 Second Month (35%) $17,500 $16,800 $19,250 $12,250 $17,500 $22,750 $14,000 Third Month (35%) $17,500 $16,800 $19,250 $12,250 $17,500 $22,750 Total Collections $15,000 $31,900 $50,800 $46,550 $46,500 $49,250 $52,250 $36,750 Cash Disbursements Material Purchases $24,000 $27,500 $17,500 $25,000 $32,500 $20,000 Salaries $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 Wages $3,000 $3,500 $3,000 $3,200 $3,500 $3,000 Other Expenses Capital Expenditure $45,000 Dividends $1,000 $1,000 Interest Total Disbursements $33,000 $37,000 $72,500 $34,200 $42,000 $30,000 Cash flows Net cash flows $17,800 $9,550 -$26,000 $15,050 $10,250 $6,750 Cumulative cash flows $17,800 $27,350 $1,350 $16,400 $26,650 $33,400 Opening Bal + Cumulative Cash $25,300 $34,850 $8,850 $23,900 $34,150 $40,900 Minimum Cash Balance $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Cash Surplus or (Deficit) $12,800 $29,850 $3,850 $18,900 $29,150 $35,900

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