Step-by-step solution file
Precision Machines Student Note: Fill in the light yellow
Hi there, I'm having trouble with this assignment, and I was hoping you could complete it, and I can compare against my trial document.
Here is the case study to start you off, and thanks for the assistance :)
Read the following case study:
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. Write a 300-word essay recommending a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.
Student Note: Fill in the light yellow cells
Annual Cost of borrowing
Minimum Cash Balance
Beginning Cash Balance
First Month (30%)
Second Month (35%)
Third Month (35%)
Net cash flows
Cumulative cash flows
Minimum Cash Balance
Cash Surplus or (Deficit)
This question was answered on: Feb 21, 2020
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