1. Use the numbers given to complete the cash budget and short-term financial plan.

Part 1:

  Company has to maintain $100000 at the end of every quarter and for purchasing machinery we need further $225000 for cover its short-term loan and provide support to company. 

2.      Rework the cash budget and short-term financial plan assuming popcorn changes to a target balance of $80000.

Cash budget:

Short term financial plan:

Part 2:

1.      You have looked at the credit policy offered by your competitors and have determined that the industry standards credit policy is1/10, net 45.this discount will begin to be offered on the first day of the year. You want to examine how this credit policy would affect the cash budget and short term financial plan. Of this credit policy is implemented, you believe that 60 percent of customers will take advantage of the credit offer and the accounts receivable period will be 24 days. Rework the cash budget and short term financial plan under the new credit policy and a target cash balance of $80000. What interest rate are you effectively offering customers?

Ans. according to this policy, if the industry’s customer returns in 45 days then 10% discount will be avail by all the customers. Companies apply this policy and consider that almost 60% customers want to get benefit from this policy as they required discounts on their term of credit. Because company want to compete all their competitors and try to capture more and more customers.

Short term financial plan:

 And with this we have to offer a interest rate of more than 10% to all its customers during applicable of new credit policy. 

2.      You have talked to the company’s suppliers about the credit terms piepkorn receives. Currently, the company receives terms of net 45. Your suppliers have stated that they would offer new credit terms of 2/25, net 40. The discount would begin to be offered on the first day of the year. What interest rate are the suppliers offering the company? Rework your cash budget and short term financial plan from the previous question assuming you take advantage of the discount offered.

Ans. when new term of credit applies by the supplier then company avail the 2 percent interest if they paid in 25 days which is under the company’s credit days and company try to meet this requirement and avail maximum advantage from this opportunity. With this facility, the company also get proper discount after getting the benefit from these policies. And company can safe more money at the end of period and attain more savings from its suppliers.