Prepare a cash budget and financing plan. Evaluate the financing Plan.

70% of sales are cashed in immediately, 30% are cashed in the following quarter. (Previous quarter sales is 397)
Options for short term financing: Bank loan with a borrowing limit upto 100mn at an interest cost of 2.5% per quarter
Company can defer upto 100mn of payables each quarter that must be paid in next quarter. This

Evaluate on following:
1. Does the plan solve company's short-term financing problem?
2. Does the plan yield satisfactory current and quick ratios?
3. Due to streching of payables, will suppliers begin to doubt the credit worthiness of the company?
4. Does the company looks into a good financial position?
5. Should the company try to arrange for long-term financing to finance the major capital expenditure in 1st quarter?
6. Is it possible to adjust the firm's operating and investment plans to make the short-term financing problem easier?
7. Should the firm try to relaese cash by reducing the level of other current assets?
1st Quarter 2nd Quarter 3rd Quarter 4th quarter

Receivables at start 150 198.9 181.5 253.5

Sales: 560 502 742 836
Current sales (70%) 392 351.4 519.4 585.2
Last period sales (30%) 119.1 168 150.6 222.6
Total Collections 511.1 519.4 670 807.8

Receivable at the end 198.9 181.5 253.5 281.7

Sources of funds: 511.1 519.4 670 807.8

Collections on A/C Rcv 511.1 519.4 670 807.8
Other 0 0 77 0

Uses of funds: 652 592 627 637.5

Payments on accounts payble 250 250 267 261
Increase in inventory 150 150 170 180
Labor & other expenses 136 136 136 136
CAPEX 70 10 8 14.5
Taxes, int and dividends 46 46 46 46

Sources minus uses: -140.9 -72.6 43 170.3

Short-term borrowing requirement

Cash at the start 25 0 0 0
Change in cash balance
Cash at the end of period
 quarter sales is 397)
cost of 2.5% per quarter
at must be paid in next quarter. This results in loss of 5% discount on deferred amount.

mpany?

penditure in 1st quarter?

nancing problem easier?
Financing Plan
1st Quarter 2nd Quarter 3rd Quarter 4th quarter
New Borrowing:
Bank Loan
Stretching Payables
Total

Repayments:
Bank Loan 0
Stretching Payables 0
Total

Net new borrowing

plus securities sold 25
less securities bought

Total cash raised

Amount Outstanding:
Bank Loan
Stretching Payables
Net securities sold

Interest Payments:
Bank Loan
Stretching Payables
Net securities sold
Net Interest Paid

Cash required for operations 0 0 0 0

Cash Required 0 0 0 0
Interest Lost on securities 2%
Interest Rate 2.50% per quarter
Discount lost 5%