PART : 1, 2, 3, 6

WORKING : 1 Collection Pattern

Nov sales received in Nov, 1993 = 0.45

Oct sales received in Nov, 1993 = 0.50
Sep sales received in Nov, 1993 = 0.05

WORKING : 2
(Amounts in $)
Months Sales CGS Material Labour Over Heads Sales Commission
Dec 75,900 45,540 26,869 1,139
Jan 116,400 69,840 41,206 17,460 11,174 1,746
Feb 116,400 69,840 41,206 17,460 11,174 1,746
Mar 110,200 66,120 39,011 16,530 10,579 1,653
Apr 133,800 80,280 47,365 20,070 12,845 2,007
May 145,500 87,300 51,507 21,825 13,968 2,183
Jun 128,000 76,800 45,312 19,200 12,288 1,920
Jul 81,400 48,840 28,816 12,210 7,814 1,221
Aug 81,400 48,840 28,816 12,210 7,814 1,221
Sep 116,400 69,840 41,206 17,460 11,174 1,746
Oct 133,800 80,280 47,365 20,070 12,845 2,007
Nov 145,500 87,300 51,507 21,825 13,968 2,183
Dec 87,300 52,380 30,904 13,095 8,381 1,310

WORKING : 3

Dec, 1993 material payment 1 month in arrears = 26,869 * 0.50 = $ 13,435

WORKING : 4

Salaries = 221,000/12 = $ 18,417

Payroll taxes = 18,000/12 = $ 1,500

$ 19,917
 WORKING : 5

Utility expenses = 32,500 / 12 = $ 2,708

WORKING : 6

Lease rentals = 30,000 / 12 = $ 2,500

WORKING : 7

Fixed rent = (2,950 * 10) / 12 = $ 2,458

WORKING : 8 Overage

Qtr 1,1994 = (116,400 + 116,400 + 110,200) * .01 = $ 3,430

Qtr 2, 1994 = (133,800 + 145,500 + 128,000) * .01 = $ 4,073

Qtr 3, 1994 = (81,400 + 81,400 + 116,400) * .01 = $ 2,792

Qtr 4, 1993 = (116,300 + 126,500 + 75,900) * .01 = $ 3,187

WORKING : 9

Bonus ( June & Dec) = 221,000 * 0.05 = $ 11,050

WORKING : 10 Quarterly Tax

Year 1994 = 42,000 / 4 = $ 10,500

Year 1993 = (Due in Jan, 1994) = $ 9,000

PART: 4
From Mike's perspective the most important characteristics of any short term borrowing
arrangements should be:

(a) Safety,

(b) Liquidity,

(c) Profitability.

A line of credit is the best option for PCI among the three short term borrowing arrangements.
Because in most of the years cash flows are in surplus and amount is negative only in years of
capital expenditure. PCI can manage the capital expenditure payments by delaying payments or
by making payments in installments after negotiation with the other party. So, the overall flow
will be positive. And with this option PCI don't have to pay any commitment fee as in revolving
credit agreement.

PART: 5
The available short term liquid investments (marketable securities) to PCI for the investment of
excess cash in year 1994 are:

(a) AAA rated bonds,

(b) T. bills and

(c) The growth stocks.

The most appropriate investment for Mike to use in the anticipation of a need for these funds
must be evaluated on the basis of the three characteristics mentioned above (safety, liquidity,
profitability) and the one with the highest features would be the most appropriate investment.

PART: 7
PCI need information of cash receipts and cash payments with exact time of their occurrence.
And decision to whether PCI should make budget on weekly or biweekly basis will be made on
the frequency of these cash payments and receipts.
PART: 8
The information and accounting reports that Mike could use besides cash budget to track the
day-to-day status of PCI are:

(a) Weekly Sales Report,

(b) Monthly Statement or Trend Analysis,

(c) Breakeven Table,

(d) Net Value Analysis.

Using the above information and reports Mike would be able to keep close track of the company
performance, most importantly if PCI is making money or losing money. This information could
also tell Mike what he have to do to keep PCI profitable.

PART: 9
The change in focus from manufacturing to service industry will increase PCI's cash needs over
the next several years due to the payments of services when they are rendered to customers in the
respective months. Therefore, the cash budget will be made in accordance with the new
requirements.

PART: 10
For the better modeling of the cash situation of the firm for the new year, sensitivity analysis
would be used by changing assumptions of economic conditions, for instance, what will be the
effect on cash requirements, if the price of material increase i-e whether cash requirements will
be increased or decreased and how good or bad the market is? As growth rate is constant in cash
budget.