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CHAPTER 26
KEAFER MANUFACTURING WORKING
CAPITAL MANAGEMENT
1. The cash flow each quarter will consist of the sales collection, minus the suppliers paid, expenses,
dividends, interest, and capital outlays. The cash flows for each quarter will be:
Cash Flow
Q1
Q2
Q3
Q4
Collections from previous quarter
$607,500.00
$753,768.00
$780,444.00
$769,500.00
Cash Balance
Q1
Q2
Q3
Q4
Beginning cash balance
$210,000.00
$167,614.00
$267,560.00
$21,018.00
Net cash inflow
–42,386.00
99,946.00
–246,542.00
116,188.48
Ending cash balance
$167,614.00
$267,560.00
$21,018.00
$137,206.48
Interest on short-term borrowing
0
0
0
–844.13
Short-term borrowing repaid
0
0
0
–70,344.40
Ending cash balance
$135,000.00
$135,000.00
$135,000.00
$135,000.00
Minimum cash balance
–135,000.00
–135,000.00
–135,000.00
–135,000.00
Cumulative surplus –deficit
$0
$0
$0
$0
Q3
876.61
2. If Keafer reduces its target cash balance to $90,000, 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
$210,000.00
$167,614.00
$267,560.00
$21,018.00
New short-term borrowing
0
0
24,893.27
0
Interest on short-term borrowing
0
0
0
–298.72
Short-term borrowing repaid
0
0
0
–24,893.27
Ending cash balance
$90,000.00
$90,000.00
$90,000.00
$90,000.00
Minimum cash balance
–90,000.00
–90,000.00
–90,000.00
–90,000.00
Q2
600.00
3. If the sales growth rate is 11 percent, the cash flows for each quarter will be:
Cash Flow
Q1
Q2
Q3
Q4
Collections from previous quarter
$607,500.00
$774,706.00
$802,123.00
$790,875.00
Collections from current quarter
Q1
Q2
Q3
Q4
Beginning cash balance
$210,000.00
$154,700.50
$262,561.67
$25,143.50
Net cash inflow
–55,299.50
107,861.17
–237,418.17
117,011.64
Ending cash balance
$154,700.50
$262,561.67
$25,143.50
$142,155.14
Minimum cash balance
135,000.00
135,000.00
135,000.00
135,000.00
Short-term borrowing repaid
0
0
0
–53,265.82
Ending cash balance
$135,000.00
$135,000.00
$135,000.00
$135,000.00
Minimum cash balance
–135,000.00
–135,000.00
–135,000.00
–135,000.00
Cumulative surplus –deficit
$0
$0
$0
$0
Beginning short-term investments
$75,000.00
$75,000.00
$183,236.17
$0
Q2
375.00
Q3
916.18
Q4
–639.19
Cash generated by short-term financing
$1,026.99
If the sales growth rate is 5 percent, the cash flows for each quarter will be:
Cash Flow
Outlay
–390,000.00
Cash Balance
Q1
Q2
Q3
Q4
Beginning cash balance
$210,000.00
$180,527.50
$272,558.33
$16,892.50
Short-term investments sold
29,097.50
0
167,405.83
0
New short-term borrowing
0
0
87,422.97
0
Interest on short-term borrowing
0
0
0
–1,049.08
Short-term borrowing repaid
0
0
0
–87,422.97
Ending cash balance
$135,000.00
$135,000.00
$135,000.00
$135,000.00
Q3
837.03
4. Since the only period in which there is borrowing is the third period, we can set the ending short-term
debt in Quarter 3 equal to zero and use Solver. Doing so, we find the necessary sales growth rate is 21
percent. The short-term financial plan would be:
Cash Flow
Q1
Q2
Q3
Q4
Net cash flow
–$98,344.50
$134,245.06
–$207,005.39
$116,810.70
Cash Balance
Q1
Q2
Q3
Q4
Beginning cash balance
$210,000.00
$111,655.50
$245,900.56
$38,895.17
Net cash inflow
–98,344.50
134,245.06
–207,005.39
116,810.70
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
$135,000.00
$135,000.00
$135,000.00
$135,000.00
Minimum cash balance
–135,000.00
–135,000.00
–135,000.00
–135,000.00
Q2
375.00
Q3
1,048.10
