VIPSolutions

VIPSolutions logo ✨ VIPSolutions

Home Dashboard Ask AI Archive

give answer in 2 step with explanation at the end of each step and final answer at the end:You have been hired by Turban Hill Manufacturing, a small cardboard box producer, to improve the finance area of its newly established treasury department. The company has a cash balance of $240,000 and plans to purchase new box-folding machinery for $445,000. Maintained cash ‘balance policy requires at least $125,000. Projected gross sales over four quarters are $1,240,000, $1,310,000, $1,370,000, and $1,450,000 respectively. Accounts receivable is $630,000, with 20% at risk of being uncollectible due to bankruptcy. The company orders 50% of the next quarter's sales and pays suppliers in 42 days. Costs account for 30% of sales, adding a quarterly interest payment of $130,000 on long-term deb The local bank provides short-term financial needs af 1.5% interest per quarter. You are tasked with preparing a cash budget and short-term financial plan under current policies, as well as alternate plans based on a reduced cash balance of $100,000 and changes from implementing new credit policies affecting cash flow and interest rates. Questions posed include reworking the budget based on assumed changes in sales terms and supplier credit conditions. Cash Budget Target Cash Balance Net Cash Inflow Ending Cash Balance Minimum Cash Balance Cumulative Surplus (Deficit) | Short-Term Financial Plan Target Cash Balance Net Cash Inflow New Short-Term Investment Income Short Term Investment Sold New Short-Term Borrowing Interest on Short Term Borrowing Short Term borrowing repaid Ending Cash Balance Minimum Cash Balance Cumulative Surplus (Deficit) Beginning Short-term Investments Ending Short term investments Minimum Cash Balance Cumulative Surplus (Deficit) Beginning short-term investments Beginning short-term debt

Question:

give answer in 2 step with explanation at the end of each step and final answer at the end:Uploaded ImageYou have been hired by Turban Hill Manufacturing, a small cardboard box producer, to improve the finance area of its newly established treasury department. The company has a cash balance of $240,000 and plans to purchase new box-folding machinery for $445,000. Maintained cash ‘balance policy requires at least $125,000. Projected gross sales over four quarters are $1,240,000, $1,310,000, $1,370,000, and $1,450,000 respectively. Accounts receivable is $630,000, with 20% at risk of being uncollectible due to bankruptcy. The company orders 50% of the next quarter's sales and pays suppliers in 42 days. Costs account for 30% of sales, adding a quarterly interest payment of $130,000 on long-term deb The local bank provides short-term financial needs af 1.5% interest per quarter. You are tasked with preparing a cash budget and short-term financial plan under current policies, as well as alternate plans based on a reduced cash balance of $100,000 and changes from implementing new credit policies affecting cash flow and interest rates. Questions posed include reworking the budget based on assumed changes in sales terms and supplier credit conditions. Cash Budget Target Cash Balance Net Cash Inflow Ending Cash Balance Minimum Cash Balance Cumulative Surplus (Deficit) | Short-Term Financial Plan Target Cash Balance Net Cash Inflow New Short-Term Investment Income Short Term Investment Sold New Short-Term Borrowing Interest on Short Term Borrowing Short Term borrowing repaid Ending Cash Balance Minimum Cash Balance Cumulative Surplus (Deficit) Beginning Short-term Investments Ending Short term investments Minimum Cash Balance Cumulative Surplus (Deficit) Beginning short-term investments Beginning short-term debt

This is AI generated Response.
Asked by: Rahul
Created at: 2025-11-08 06:41:11

Final Answer:

Rendered Raw Text
Did you like this answer?
Certainly! Let’s break down the problem in two steps, providing explanations after each, and then give the final answer. --- ## **Step1: Identify Cash Requirements Key Figures** ### **Explanation:** - **Current Cash Balance:** $240,000 - **Machinery Purchase:** $445,000 (one-time outflow) - **Minimum (Maintained) Cash Balance:** $125,000 (must not fall below) - **Quarterly Gross Sales:** Q1: $1,240,000, Q2: $1,310,000, Q3: $1,370,000, Q4: $1,450,000 - **Accounts Receivable at Risk:** $630,000, with 20% potentially uncollectible - **Sales Collection:** Company collects 50% of next quarter’s sales (implies some timing for cash inflow) - **Supplier Payment:** Pays suppliers in 42 days (about halfway through next quarter) - **Costs:** 30% of sales (COGS), plus $130,000/quarter interest on long-term debt - **Interest Rate for Short-term Needs:** 1.5% per quarter #### **Key Immediate Calculation:** The purchase of the machinery ($445,000) will immediately reduce the cash balance. So, after purchase: $240,000 (starting cash) - $445,000 (machinery) = **- $205,000** (deficit before other inflows/outflows) This means, before considering other inflows and outflows, the company will need to cover a cash shortfall. --- ## **Step 2: Calculate Net Cash Inflow and Minimum Cash Needs** ### **Explanation:** Let’s estimate the main cash flows for Q1: - **Sales Collected in Q1:** 50% of Q2 sales = .5 × $1,310,000 = $655,000 - **COGS Paid in Q1:** 30% of Q1 sales = .3 × $1,240,000 = $372,000 - **Interest Payment:** $130,000 - **Accounts Receivable Loss:** 20% of $630,000 = $126,000 (potential write-off, not necessarily a cash outflow for Q1 unless collected now) - **Machinery Purchase:** $445,000 (already subtracted above) - **Minimum Cash Required to be Maintained:** $125,000 #### **Net Cash Inflow for Q1:** Cash collected (from future sales): $655,000 Less cash paid out (COGS + Interest + Machinery): $372,000 (COGS) + $130,000 (Interest) + $445,000 (Machinery) = $947,000 **Net Cash Inflow = $655,000 (inflow) - $947,000 (outflow) = -$292,000** Add starting cash: $240,000 **Ending Cash Balance (before minimum policy): $240,000 - $292,000 = -$52,000** But, the company must have at least $125,000, so it will need to borrow: **Cash Needed = $125,000 (minimum) + $52,000 (shortfall) = $177,000** --- ## **Final Answer:** ### **Turban Hill Manufacturing will need to borrow at least $177,000 at the start of Q1 to meet its minimum cash balance policy after purchasing the new machinery and accounting for operating cash flows.** --- **Summary of Steps:** 1. **Step 1:** Calculated the immediate cash deficit after machinery purchase. 2. **Step 2:** Estimated net cash inflow and determined the total borrowing needed to maintain the minimum cash balance.

📢 Instructions:

  • Ask anything relatd to above question only.
  • For new Question goto :
    Ask AI

Related Answers

Study Help, Fast Answers

VIPSolutions focuses on clear, step‑by‑step explanations so you can learn quickly. Whether you need an AI‑generated walkthrough or a short hint to get unstuck, each solution is organized for fast reading and easy review later.

Search similar questions, compare approaches, and bookmark the best answers for revision. Our goal is simple: quick, reliable study help that feels natural—not noisy.