Cost of borrowing Minimum Cash Balance Beginning Cash Balance Revenues

| April 14, 2018

Precision MachinesData:NovemberCost of borrowingMinimum Cash BalanceBeginning Cash BalanceRevenues (Sales)Materials PurchasesCash CollectionsFirst Month (30%)Second Month (35%)Third Month (35%)Total Collections10.00%$5,000$7,500DecemberJanuary$7,500.00$40,000$20,000$5,000.005000$50,000$25,000$5,000.005000$48,000$24,000November$12,000December$23,400January$24,900$9,800$12,000$23,400$34,700Cash DisbursementsMaterial PurchasesSalariesWagesOther ExpensesCapital ExpenditureDividendsInterestTotal DisbursementsCash flowsNet cash flowsCumulative cash flowsMinimum Cash BalanceCash Surplus or DeficitRecommendations:From the projected cash budget it is evident that from Februarymonth till May month there will be cash deficit and the companyrequires a higher amount of loan to meet the minimum balancerequirement of the cash balance. In this case, the company hasstrategy to make repayment of the loan using the excess cashgenerated during the month. But it is adding more pressure to thefollowing months. The company should make strategy in which theywill assign only a particular proportion of the surplus cash towardsthe loan repayment. In other words, a certain percentage of the cashsurplus should be maintained by the company that will enable themto reduce the overall burden during a particular month. The strategyused by the company will result in always maintaining only minimumcash balance that cannot be suitable all the time. There is theparticular month where the expenses are very high, and the companyrequires more cash to manage them. Adding more amount ofborrowings will challenge the liquidity of the company. During Marchmonth, the capital expenditure is $25,000 company requires toaccumulate funds from the month of December so that it can reducethe number of borrowings. It is increasing the interest burden everymonth. The company should change the collection strategy. Companyemphasis on a quicker collection with an attractive discount between1% and 2%. Collection of 70% of the sales should be made as 45%in the first month and the remaining in the second month. Similarly,payables should not be paid immediately during the next month ofpurchase. 50% should be paid during the first month of purchase andremaining 50% during the second month of purchase it will reducethe overall cash requirement. All these changes are essential toreduce the working capital requirement. Minimum balancerequirement should be increased by the company and appropriateallocation between cash reserve and loan repayment. These changesare essential to managing the cash budget.$20,000$20,000$19,500.00$19,500.005000$14,500.00$8,400$27,900.005000$3,400FebruaryMarchAprilMayJune78188.88889 86954.32099 55143.68999 64976.32221 27278.88889$5,000.00$5,000.00$5,000.00$5,000.00$5,000.005000$5,000.00$5,000.00$5,000.00$5,000.00$55,000$35,000$50,000$65,000$40,000$27,500$17,500$25,000$32,500$20,000February$26,580$12,250$9,800$48,630March$22,050$11,760$12,250$46,060April$22,350$13,475$11,760$47,585May$30,000$8,575$13,475$52,050June$25,650$12,250$8,575$46,475$25,000$24,000$27,500$17,500$25,000$32,500$ 6,000.00 $ 60,000.00 $ 60,000.00 $ 60,000.00 $ 60,000.00 $ 6,000.00$ 3,000.00 $ 35,000.00 $ 3,000.00 $ 3,200.00 $ 3,500.00 $ 3,000.00$ 25,000.00$ 1,000.00$ 1,000.00$ 7,818.89 $ 16,514.32 $ 22,028.69 $ 28,526.32 $ 31,254.21$34,000$126,819$133,014$102,729$117,026$73,754$5,700$33,600.005000$700$5,000$38,600.005000$0$5,000$43,600.005000$0$5,000$48,600.005000$0$5,000$53,600.005000$0$5,000$58,599.685000$0

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