Please Read The Relevant Parts Of Your Textbook Which 730255

Please Read The Relevant Parts Of Your Textbook Which Refer To Cash F

Please read the relevant parts of your textbook, which refer to cash flow and financial planning. To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months: March $250,000 April $275,000 May $320,000 June $450,000 July $575,000 August $700,000 September $825,000 October $350,000 November $285,000

He has also gathered the following collection estimates regarding the forecast sales: Payment collection within the month of sale = 10% Payment collection the month following sales = 65% Payment collection the second month following sales = 25%. Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows: March $187,500 April $206,250 May $240,000 June $337,500 July $431,250 August $525,000 September $618,750 October $262,500.

Additional financial information is as follows: Administrative salaries will approximately amount to $35,000 a month. Lease payments around $15,000 a month. Depreciation charges, $15,000 a month. A one-time new plant investment in the amount of $95,000 is expected to be incurred and paid in June. Income tax payments estimated to be around $55,000 will be due in both June and September. And finally, miscellaneous costs are estimated to be around $10,000 a month.

Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times. Group Project Guidelines: To receive full credit on this assignment, please show all work, including formulas and calculations used to arrive at the financial values. As a group, prepare a monthly cash budget for Cyrus Brown Manufacturing for the 9-month period of March through November. Use Microsoft Excel to prepare the monthly cash budget.

Based on your cash budget findings, answer the following questions: Will the company need any outside financing? What is the minimum line of credit that CBM will need? What do you think of CBM's cash position during the budget period? Do you see any concerns for the company in this regard? If you were a bank manager, would you want CBM as your client? Why or why not?

Why or why not? It is up to the members of the group to divide the assignment tasks evenly. You will be graded on group participation. Your submitted Group Project must include the following: A Microsoft Excel spreadsheet that contains your group's monthly cash budget for Cyrus Brown Manufacturing. A double-spaced Word document of 1–2 pages that contains your answers to the questions listed in the Assignment Guidelines.

Paper For Above instruction

Developing a comprehensive cash budget is critical for Cyrus Brown Manufacturing (CBM) to accurately forecast its cash inflows and outflows over the upcoming period spanning March to November. Given the sales forecast and detailed expense estimates, the cash budget will facilitate understanding of the company's liquidity position, determine if additional financing is necessary, and ensure that CBM maintains a minimum cash balance as required.

The first step in creating the cash budget involves estimating cash inflows from sales. CBM's collection pattern indicates that only 10% of sales are collected within the same month, with significant portions collected in subsequent months—65% in the following month and 25% in the second month after sales. Calculating these collections requires applying these percentages to forecasted sales for each month, which will generate the monthly cash inflows from sales.

Next, cash outflows must be detailed, encompassing the direct manufacturing costs, operating expenses, capital investments, taxes, and miscellaneous costs. Manufacturing costs are paid the month after incurrence, requiring calculating expenses based on prior months’ sales and production. Operating expenses such as administrative salaries, lease payments, depreciation, and miscellaneous costs are straightforward monthly expenses, totaling $35,000, $15,000, $15,000, and $10,000 respectively.

Special considerations include the planned $95,000 investment in new plant equipment, which will occur in June, and tax payments scheduled for June and September at $55,000 each. These large payments significantly impact the cash flow, necessitating careful analysis to assess whether CBM will face cash shortages or surpluses.

Once summarized, the cash inflows and outflows enable the calculation of the net cash flow for each month. To maintain operational liquidity, the company needs to monitor its cash on hand, beginning with an initial balance of $50,000 on March 1. The minimum cash balance requirement of $50,000 must be preserved at all times, meaning any shortfalls need to be covered through financing.

By summing the opening cash balance with the net cash flow each month, the cash position for subsequent months can be projected. If a deficit is anticipated—that is, if total outflows exceed inflows—the company might need to secure a line of credit to cover the shortfall. Calculating the maximum cumulative deficit across the period reveals the minimum line of credit needed to ensure continuous operations without falling below the required minimum cash balance.

The analysis of CBM’s cash position during the budget period suggests that, due to high projected sales, substantial manufacturing costs, significant capital investments, and scheduled tax payments, the company might experience cash shortages in certain months, notably June and September. These months will likely require outside financing unless adjustments are made to timing or expenses.

From a financial perspective, as a bank manager, providing CBM with a line of credit could be justified if the company maintains a strong sales forecast and good credit history. However, the need for external financing and the potential for cash shortages highlight the importance of diligent cash flow management. The bank would need to assess CBM’s overall financial health, profitability, and collateral before extending credit.

In conclusion, developing this cash budget provides valuable insight into CBM’s liquidity needs over the specified period. Effective planning helps prevent liquidity shortages, ensures smooth operations, and allows for strategic financial management. CBM's cash position during the budget period will largely depend on accurate collection, expense management, and timely financing arrangements where necessary. Given these considerations, CBM could be viewed as a promising client with proper financial discipline and planning, but careful monitoring and contingency planning are essential.

References

• Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (16th ed.). Cengage Learning.
• Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance (14th ed.). Pearson.
• Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
• Ross, S. A., Westerfield, R., & Jordan, B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.
• Shim, J. K., & Siegel, J. G. (2012). Budgeting Basics and Beyond (2nd ed.). Wiley.
• Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of Financial Management (15th ed.). McGraw-Hill Education.
• Palepu, K. G., & Healy, P. M. (2018). Business Analysis & Valuation: Using Financial Statements (6th ed.). Cengage Learning.
• Van Horne, J. C., & Wachowicz, J. M. (2018). Fundamentals of Financial Management (14th ed.). Pearson.
• Investopedia. (2023). How to Prepare a Cash Budget. Retrieved from https://www.investopedia.com
• Small Business Administration. (2020). Cash Flow Management. Retrieved from https://www.sba.gov