Case Scenario: CASH FLOW AND FINANCIAL PLANNING
White Ltd generated sales revenues of $325,000 and $375,000 in March and April, and projected sales of $375,000, $400,000, $450,000 and $500,000 for May to August, respectively.
1) Twenty per cent of the firm's sales is for cash, 40% collected 1 month later and the remaining 40% is collected two months later.
2) The firm expects to receive a monthly income of $12,500 attributable to interest and dividends.
3) The firm's purchases during March and April were $200,000 each month and are expected to be $225,000, $250,000, $275,000 and $325,000 during May to August, respectively.
4) Ten percent of the firm's purchases are for cash, 40% is paid one month later and the remaining 50% is paid after a two-month lag.
5) Wages and salaries can be found for each month by adding 10% of the previous month's sales to a fixed $50,000 charge.
6) Monthly office and warehouse rents of $40,000 must be paid.
7) Cash dividends of $20,000 will be paid in May and August.
8) Taxes of $37,500 will be paid in May and August.
9) A loan payment of $75,000, which includes principal and interest, must be made in July.
10) A cash payment of $125,000 will be completed for a new machine in June.
11) The firm's cash balance at the end of April was $87,500.
12) The policy requires a minimum cash balance of $50,000.
Requirements: a) Prepare a cash budget for May, June, July and August.
b) Comment on the firm's cash status forecast for May, June, July and August.