Precision Machines Business Finance Question Help

PrecisionMachines

Read the followingcase study:

Precision Machinesis preparing a financial plan for the next six months to determine thefinancial needs of the company. The historical analysis of the company’s salesshows that the company’s total sales are 30% cash sales and 70% creditsales.  Further analysis of credit salesshows that the company receives 50% of the credit sales one month after thesale and the remaining 50% in the second month after the sale. This means thecash collections from sales are 30% in the first month of the sale, 35% in thesecond month, and 35% in the third month. 

The materials purchased by the company amounts to 50% of thesales for the month.  The company paysfor the purchases one month after the initial purchase. The company likes tomaintain a cash balance of $5,000. The cost of borrowing is 10%.  The company plans to pay off the loanwhenever 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 sixmonths.  Using the information given onthe spreadsheet, prepare a cash budget for January through June and determinethe cash surplus, deficit, and the financing needs of the company. 

  • Recommend a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.

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