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Homework answers / question archive / Taft, Inc
Taft, Inc. is planning its financing needs for the next three months. The company's estimated sales and purchases for the past three months, plus projected sales and purchases for the next three months, are shown below: Actual Forecast October November December January February March Sales $ 450,000 $ 550,000 $ 800,000 # $ 400,000 $ 450,000 $ 450,000 Purchases $ 400,000 $ 500,000 $ 350,000 # $ 200,000 $ 300,000 $ 300,000 40% of Taft's sales are for cash. The company's Average Collection Period from customers is 60 days. It's standard pay terms with suppliers is 90 days. In addition, the company is planning the following cash expenditures:
Wages Payable Each Month $ 85,000 Taxes Payable End of March $ 80,000 Interest Payable Each Month $ 15,000 Dividend Payment in March $ 75,000 The company's cash balance on January 1st is $350,000. It desires a minimum cash balance of $200,000 at all times.
a) Construct a monthly cash budget for January through March.
b) Does the company need a loan to sustain its minimum cash balance? If so, how large should it be?
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