CHAPTER 16
PIEPKORN MANUFACTURING
WORKING CAPITAL MANAGEMENT,
PART 1
1. The cash flow each quarter will consist of the sales collection, minus the suppliers paid, expenses,
dividends, interest, and capital outlays. The payables paid each quarter are based off the unpaid
orders from the previous quarter and the payables paid from this quarter’s orders, or:
The cash flows for each quarter will be:
Cash Flows
Q1
Q2
Q3
Q4
Sales
$863,500.00
$918,500.00
$996,000.00
$924,000.00
Payables paid
From previous quarter orders
–254,252.78
–270,447.22
–293,266.67
–272,066.67
From current quarter orders
–188,802.78
–204,733.33
–189,933.33
–186,644.44
Wages, taxes, and other costs
–259,050.00
–275,550.00
–298,800.00
–277,200.00
Interest and dividends
–115,000.00
–115,000.00
–115,000.00
–115,000.00
Outlay
–325,000.00
Cash flow
$46,394.44
$52,769.44
$99,000.00
–$251,911.11
Cash Balance
Q1
Q2
Q3
Q4
$154,000.00
$200,394.44
$253,163.89
$352,163.89
46,394.44
52,769.44
99,000.00
–251,911.11
$200,394.44
$253,163.89
$352,163.89
$100,252.78
100,000.00
100,000.00
100,000.00
100,000.00
$100,394.44
$153,163.89
$252,163.89
The short-term financial plan looks like this:
Short-term Financial Plan
$100,000.00
$100,000.00
$100,000.00
$100,000.00
46,394.44
52,769.44
99,000.00
–251,911.11
–46,934.44
–53,778.79
–100,547.13
0
540.00
1,009.34
1,547.13
2,552.60
$54,000.00
$100,934.44
$154,713.23
$255,260.37
100,934.44
154,713.23
255,260.37
5,901.86
The interest calculations for each quarter and the net cash cost are:
Q1:
Excess funds at start of quarter of
$54,000.00
earns
$540.00
in income.
Q2:
Excess funds at start of quarter of
$100,934.44
earns
$1,009.34
in income.
Q3:
Excess funds at start of quarter of
$154,713.23
earns
$1,547.13
in income.
Q4:
Excess funds at start of quarter of
$255,260.37
earns
$2,552.60
in income.
Cash generated by short-term financing
Short-term investments sold
0
0
0
New short-term borrowing
0
0
0
0
Interest on short-term borrowing
0
0
0
0
Short-term borrowing repaid
0
0
0
0
Ending cash balance
$100,000.00
$100,000.00
$100,000.00
$100,000.00
Minimum cash balance
Cumulative surplus (deficit)
2. If Piepkorn reduces its target cash balance to $80,000, the cash flows each quarter will remain the
same, so they will not be repeated here. The cash balance and short-term financial plan will be:
Cash Balance
Q1
Q2
Q3
Q4
Beginning cash balance
$154,000.00
$200,394.44
$253,163.89
$352,163.89
Net cash inflow
46,394.44
52,769.44
99,000.00
–251,911.11
Ending cash balance
$200,394.44
$253,163.89
$352,163.89
$100,252.78
Minimum cash balance
80,000.00
80,000.00
80,000.00
80,000.00
Cumulative surplus (deficit)
$120,394.44
$173,163.89
$272,163.89
$20,252.78
Beginning short-term investments
$74,000.00
$121,134.44
$175,115.23
$275,866.39
Ending short-term investments
121,134.44
175,115.23
275,866.39
26,713.94
Beginning short-term debt
0
0
0
0
Ending short-term debt
0
0
0
0
Q1:
Excess funds at start of quarter of
$74,000.00
earns
$740.00
in income.
Q2:
Excess funds at start of quarter of
earns
in income.
Q3:
Excess funds at start of quarter of
earns
in income.
Q4:
Excess funds at start of quarter of
earns
in income.
$1,211.34
$1,751.15
$2,758.66
$6,461.16
Target cash balance
$80,000.00
$80,000.00
$80,000.00
$80,000.00
Net cash inflow
46,394.44
52,769.44
99,000.00
New short-term investments
0
Income on short-term investments
Short-term investments sold
0
0
0
249,152.45
New short-term borrowing
0
0
0
0
Interest on short-term borrowing
0
0
0
0
Short-term borrowing repaid
0
0
0
0
Ending cash balance
$80,000.00
$80,000.00
$80,000.00
$80,000.00
Minimum cash balance
Cumulative surplus (deficit)