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XYZ Corporation is facing pressure from increasing costs for its products as well as demands from employees for more competitive wages. Management wants you to develop a cash budget model that it can use to analyze the impact of various assumptions on the projected month-end cash positions for June through September. (A cash budget model lays out the cash inflows and outflows for each month to arrive at numbers of interest to a business manager such as the projected month-end cash positions.)

XYZ Corporation is facing pressure from increasing costs for its products as well as demands from employees for more competitive wages. Management wants you to develop a cash budget model that it can use to analyze the impact of various assumptions on the projected month-end cash positions for June through September. (A cash budget model lays out the cash inflows and outflows for each month to arrive at numbers of interest to a business manager such as the projected month-end cash positions.)

You are building your model in the month of February. But because you are not given all information needed to do full cash flow projections for April and May, your full projections will start with the month of June. Do projections through the month of September.

XYZ’s sales are projected to be as follows: April: $153,000, May: $146,000, June: $142,000, July: $210,000, August: $240,000, Sept.: $225,000, Oct.: $300,000. The company’s sales are 75% in cash collected the same month and 25% on credit collected the next month. The company purchases its products at 50% of sales and pays half of it in the month after purchase and the other half in the month after that. Purchases are made one month prior to sales.

The current wage rate is 20% of sales, lease payments are $30,000 per month, quarterly interest payments (on existing long-term debt) of $10,000 are due in June and September, a dividend payout of $100,000 is scheduled for July, and tax payments in June and September are estimated to be $9,000 and $17,000, respectively.

Assume that at the end of May the company will have no short-term debt or investment and a cash balance of $50,000. For your projections this is given input data that cannot be changed based on anything.

Also assume that all transactions take place on the last day of the month and the cash balance at the beginning of any month is the same as that at the end of the previous month.

Submit three printouts for the following 3 versions of the model using the templates provided. Although it should not be necessary, you can add (only a few) additional properly labeled intermediate calculation lines to the templates. But you must do so below row 41 or to the right of column I. You cannot delete or move any of the labeled lines already shown in the templates and your model must calculate and show projections for all of these lines. The printouts you submit must look like the templates with any rows and columns you add shown in gray.

For parts (b) and (c) also include a description of the logic you used in your model. The description must be concise and easy to follow, in the form of diagrams (such as decision trees) or concise algebraic equations, and cannot be verbal descriptions of your logic. The logic cannot be handwritten.

(a) Create a model to project the month-end cash balances for June to Sept. and show what these balances will be under the above assumptions. You must redo and submit this part using the template provided even though you may have already done it as a practice problem.

(No points for this part, but you must do and submit it)

(b) Management wants to maintain a minimum cash balance of $15,000, using short-term debt if necessary. However, if at the end of any month the cash level is projected to be above that level, the excess should be used to pay off any outstanding short-term debt. The company will have to pay interest (payable monthly) at an annual rate of 8% on any short-term debt. Modify your model in (a) to incorporate these refinements.

Show your formulas for the following cells G30, G32, G34, G36 using the method discussed in the class. Also make sure that your print out shows the row and column numbers. Otherwise one cannot follow your formulas.

(40 points)

(c) Management further wants to invest any cash balance above the target $15,000 level earning 6% annual interest income (paid monthly). (Any excess cash should first be used to pay off outstanding short-term debt. Similarly any investment should be drawn down before incurring any short-term debt.) Modify your model in (b) to incorporate these refinements.

Show your formulas for the following cells G31, G34, G36, G38, G39 using the method discussed in the class. Also make sure that your print out shows the row and column numbers. Otherwise one cannot follow your formulas.

(100 points)

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