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In: Finance
Cash budget The cash budget is considered the primary forecasting tool when firms try to estimate...
Cash budget
The cash budget is considered the primary forecasting tool when firms try to estimate their cash flows and figure out if they are likely to need additional cash flows or to generate surplus cash.
Consider the case of Mooney Equipment:
Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of the next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars):
|
Q1 |
Q2 |
Q3 |
Q4 |
Q5 |
|
|---|---|---|---|---|---|
| Sales | $1,650 | $1,950 | $2,000 | $1,800 | $2,050 |
| Total cash collections | $1,650 | $1,700 | $1,750 | $1,750 |
You also have the following information about Mooney Equipment:
| • | In any given period, Mooney’s purchases from suppliers generally account for 80% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next period’s sales. |
| • | In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,080 million investment. |
| • | Every quarter, Mooney pays $45 million in interest and dividend payments to long-term debt and equity investors. |
| • | Mooney prefers to keep a minimum target cash balance of at least $16 million at all times. |
1. Using the preceding information, answer the following questions: (Note: Round your answers to the nearest millionth dollar.)
| • What is the net cash inflow that Mooney expects in the second quarter (Q2)? | |
| • If Mooney is beginning this year with a cash balance of $40 million and expects to maintain a minimum target cash balance of at least $16 million, what will be its likely cash balance at the end of the year (after Q4)? | |
| • What is the maximum investable funds that the firm expects to have in the next year? | |
| • What is the largest cash deficit that the firm expects to suffer in the next year? |
Drop down answers:
- -1,085 mil, -243 mil, -248 mil & -245 mil
- -1,781 mil, -208 mil, -1,538 mil & -453 mil
- -224 mil, -112 mil, -157 mil, & -190 mil
- --1,078 mil, -1,797 mil, -1,258mil, & -898 mil
True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.
False
True
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jeff jeffy answered 1 year agoRelated Solutions
The cash budget is considered the primary forecasting tool when firms try to estimate their cash...
The cash budget is considered the primary forecasting tool when
firms try to estimate their cash flows and figure out if they are
likely to need additional cash flows or to generate surplus
cash.
Consider the case of Mooney Equipment:
Mooney Equipment is putting together its cash budget for the
following year and has forecasted expected cash collections over
the next five quarters (one year plus the first quarter of the next
year). The cash collection estimates are based on...
The cash budget is considered the primary forecasting tool when firms try to estimate their cash...
The cash budget is considered the primary forecasting tool when
firms try to estimate their cash flows and figure out if they are
likely to need additional cash flows or to generate surplus
cash.
Consider the case of Mooney Equipment:
Mooney Equipment is putting together its cash budget for the
following year and has forecasted expected cash collections over
the next five quarters (one year plus the first quarter of the next
year). The cash collection estimates are based on...
Do all the Q1, Q2, Q3 and Q4 The cash budget is the primary tool used...
Do all the Q1, Q2, Q3 and Q4
The cash budget is the primary tool used in
short-term financial planning. As with many calculations, the sales
forecast is a primary input. As an example of the cash budgeting
process, we will use the Fun Toys Corporation. The sales
projections and other information provided are:
Q1
Q2
Q3
Q4
Sales
$ 200,000,000
$ 300,000,000
$ 250,000,000
$ 400,000,000
Beginning receivables:
$ 120,000,000
Receivables period (days):
45
With the receivables period shown, we can calculate
the percentage...
When researching information to complete the cash flow budget, what needs to be considered?
When researching information to complete the cash flow budget,
what needs to be considered?
The primary difference between demand management and demand forecasting is 1) forecasting is only possible when...
The primary difference between demand management and demand
forecasting is
1) forecasting is only possible when quantitative data are
available.
2) demand management is proactive, while forecasting attempts to
predict.
3) a firm cannot execute both approaches simultaneously.
4) one approach deals with uncertainty, while the other deals
with known demand.
The primary reason that managers impose a minimum cash balance in the cash budget is a....
The primary reason that managers impose a minimum cash balance
in the cash budget is
a.
that it protects the organization from the uncertainty of the
budgeting process.
b.
that it makes the financial statements look more appealing to
creditors.
c.
because management needs discretionary cash for unforeseen
business opportunities.
d.
managers lack discipline to control their spending.
Please list and provide a DESCRIPTION and EXAMPLE of the different types of firms when forecasting...
Please list and provide a DESCRIPTION and EXAMPLE of the
different types of firms when forecasting revenues.
Please answer both question as a discussion board The sales budget is considered the primary driver...
Please answer both question as a discussion board
The sales budget is considered the primary driver of all other
budgets including budget balance sheet and cash budget.
1. Explain why it is critical the sales budget is the first
budget prepared in the master budget.
2. Describe how changes in the sales budget can ripple through
the operating budgets and impact the cash budget and budgeted
balance sheet.
What aspects should be considered when making the nutritional estimate of the patient?
THEME: NASOGASTRIC TUBE INSERTIONDescribe the components and general functions of the
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pattern and need assistance from the nursing professional? Provide
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What is the biggest challenge when economists try to estimate peer effects? Please explain.
What is the biggest challenge when economists try to
estimate peer effects? Please explain.
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