Question

Multiple cash budgets—Scenario analysis Brownstein, Inc., expects sales of $100,000 during each of the next 3 months. It will make monthly purchases of $62,000 during this time. Wages and salaries are $19,000 per month plus 4% of sales. Brownstein expects to make a tax payment of $22,000 in the next month and a $13,000 purchase of fixed assets in the second month and to receive $7,000 in cash from the sale of an asset in the third month. All sales and purchases are for cash. Beginning cash and the minimum cash balance are assumed to be zero. a. Construct a cash budget for the next 3 months. b. Brownstein is unsure of the sales levels, but all other figures are certain. If the most pessimistic sales figure is $76,000 per month and the most optimistic is $120,000 per month, what are the monthly minimum and maximum ending cash balances that the firm can expect for each of the 1-month periods? c. Briefly discuss how the financial manager can use the data in parts a. and b. to plan for financing needs. a. Construct a cash budget for the next 3 months. Complete the Brownstein, Inc.'s cash budget for the 1st month below: (Round to the nearest $000.) Brownstein, Inc. Cash Budget ($000) Most likely scenario Sales $ Sale of asset $ 1st Month 100 d Purchases $ $ Wages and salaries Taxes $ $ Purchase of fixed asset Net cash flow $ $ Add: Beginning cash Ending cash $ Enter any number in the edit fields and then click Check Answer.

Answer 1

a. Cash Budget for 3 Months ( $ in' 000)

Particulars

1st Month

2nd Month

3rd Month

Sales

100

100

100

Sale of Assets	0	0	7
Purchase	62	62	62
Wages and Salaries	23	23	23
Taxes	0	22	0
Purchase of Fixed Assets	0	13	0
Net Cash Flow	15	20	22
Add: Beginning Cash	0	15	0
Ending Cash	15	5	22
Bring Cash for Minimum Level	0	5	0

b. Minimum and maximum cash balance    ( $ in' 000)

when sales are at minimum level

Particulars

1st Month

2nd Month

3rd Month

Sales

76

76

76

Sale of Assets	0	0	7
Purchase	62	62	62
Wages and Salaries	23	23	23
Taxes	0	22	0
Purchase of Fixed Assets	0	13	0
Net Cash Flow	9	44	60
Add: Beginning Cash	0	9	53
Ending Cash	9	53	7

when sales are at Maximum level

Particulars

1st Month

2nd Month

3rd Month

Sales

120

120

120

Sale of Assets	0	0	7
Purchase	62	62	62
Wages and Salaries	23	23	23
Taxes	0	22	0
Purchase of Fixed Assets	0	13	0
Net Cash Flow	35	0	42
Add: Beginning Cash	0	35	35
Ending Cash	35	35	77

At minimum level cash at end of 3rd year $7

At Maximum level cash at end of 3rd year is $77

c. use of cash budget for planning financial data

According to point a above there is excess cash available in 1st and 3rd month of $ 15,000 and $ 22,000 can retained in business for meeting crises which are going to arise in 2nd Month of $5,000 and excess fund can be invested for further earnings .

point b specify that in both minimum and maximum level there is excess fund available . manager can plan to invest these excess fund for further earnings.