UOP FIN/370 Version 10 Precision Machines Team Assignment

Precision Machines Team Assignment
FIN/370 Version 10

University of Phoenix Material
Precision Machines
Read the following case study:
Precision Machines is preparing a financial plan for the next six months to determine the financial needs
of the company. The historical analysis of the company’s sales shows that the company’s total sales are
30% cash sales and 70% credit sales. Further analysis of credit sales shows that the company receives
50% of the credit sales one month after the sale and the remaining 50% in the second month after the
sale. This means the cash collections from sales are 30% in the first month of the sale, 35% in the second
month, and 35% in the third month.
The materials purchased by the company amounts to 50% of the sales for the month. The company pays
for the purchases one month after the initial purchase. The company likes to maintain a cash balance of
$5,000. The cost of borrowing is 10%. The company plans to pay off the loan whenever there is a surplus
and borrow when there is a deficit.
The attached spreadsheet shows revenues (sales), expenses, capital expenditures, and other expenses
for Precision Machines’ next six months. Using the information given on the spreadsheet, prepare a cash
budget for January through June and determine the cash surplus, deficit, and the financing needs of the
company. Write a 300-word essay recommending a cash management strategy for the company that will
minimize the financing cost and increase the cash flows for the company.