Reference no: EM132607164
Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month. The firm will make purchases of $350,000 per month during these months. Wages and salaries are estimated at $60,000 per month plus 7 percent of sales. The firm must make a principal and interest payment on an outstanding loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in July. The second quarter tax payment of $20,000 is also due in June. All sales are for cash.
Question (a) Construct a cash budget for June, July, and August, assuming the firm has a beginning cash balance of $100,000 in June.
Question (b) The sales projections may not be accurate due to the lack of experience by a newly-hired sales manager. If the sales manager believes the most optimistic and pessimistic estimates of sales are $600,000 and $400,000, respectively, what are the monthly net cash flows and required financing or excess cash balances?
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