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 results in loss of 5% discount on deferred amount.

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?
Financing Plan
1st Quarter 2nd Quarter 3rd Quarter 4th quarter 1st Quarter 2nd Quarter 3rd Quarter 4th quarter
New Borrowing:
Receivables at start 150 Bank Loan
Sales: 560 502 742 836 Stretching Payables
Current sales (70%) Total
Last period sales (30%)
Total Collections Repayments:
Bank Loan 0
Rcvle at the end (start +sales - coll) Stretching Payables 0
Total
Sources of funds:
Collections on A/C Rcv Net new borrowing 0
Other 77 plus securities sold 25
less securities bought
Uses of funds:
Payments on accounts payble 250 250 267 261 Total cash raised
Increase in inventory 150 150 170 180
Labor & other expenses 136 136 136 136 Amount Outstanding:
CAPEX 70 10 8 14.5 Bank Loan
Taxes, int and dividends 46 46 46 46 Stretching Payables
Securities
Sources minus uses:
Interest Payments:
Short-term borrowing requirement Bank Loan
Cash at the start 25 Stretching Payables
Change in cash balance Net Interest Paid
Cash at the end of period
Cash required for operations
Total Cash Required (Including
per quarter Int & Repayments)
Interest Lost
on securities 2%
Interest Rate 2.50%
Discount lost 5%