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SEMESTER Fall 2016
Corporate Finance (FIN722)
Assignment No. 2
Due Date: February 2, 2017 Marks: 35
Topic: Cash Budget and Working Capital Management
After attempting this assignment, students will be able to:
1) Understand and prepare cash budget
2) Learn application of Miller-Orr model of cash management
3) Workout current assets and liabilities for working capital
A shoe manufacturing company, specializes in customized sprinter shoes, is preparing cash budget for
the first quarter of year 2017. Pertinent information is provided as follow:
Company’s closing balance of cash as of 31st December, 2016 is Rs. 10,000.
Actual sales for the month of November, 2016 and December, 2016 were Rs. 100,000 and Rs.
105,000 respectively. Afterwards sales are expected to grow by Rs. 2,000 per month.
According to credit extension policy of the company with its debtors, 70% sales will be on credit
basis with credit term of 2-month while remaining will be on cash basis.
Raw material costs for the month of November and December, 2016 were Rs. 35,000 and Rs.
36,750 respectively, and expected to grow by Rs. 1,500 per month in future.
Selling and Administration cost was Rs. 40,000 per month for November and December, 2016
and expected to remain same in the next year.
Direct labor cost was Rs. 12,000 each for the month of November and December, 2016.
According to revised rule, direct labor cost is forecasted to increase by Rs. 1,000 in next year.
Recurring expense were Rs. 5,000 each for the month of November and December, 2016. It is
expected that in year 2017, recurring expenses will remain Rs. 6,000 per month for whole year.
Electricity bill of Rs. 8,000 is required to be paid in each month and expected to remain at same
rate in next year.
Credit terms of the company are as under:
Working Capital Requirements Credit terms
Raw material expense payable 2-month
Selling and administration expenses payable 1-month
Direct labor payable 1-month
Recurring expense payable Paid in the month of incurrence
Electricity bill payable Paid in the month of incurrence
In addition to above information:
On 17th November, 2016, the company has purchased equipment required in manufacturing unit
for Rs. 7,000, payment of which will be made in the month of March, 2017.
The company has also sold old machinery of worth Rs. 4,500 in the month of December, 2016
and proceeds are expected to receive in the month of February, 2017.
The company has borrowed long term loan of Rs. 200,000 from the bank to finance the purchase
of plant and machinery. Interest payments at the rate of 4.25% per month are starting from month
of January, 2017.
Company owns marketable securities worth Rs. 105,000.
1. Prepare cash budget for the first quarter of year 2017.
2. Company has decided a limit of Rs. 10,000 as its return point for cash management. Based upon
the ending cash balance calculated for the month of March, suggest which strategy company
should follow in order to reach at return point. (Keep in mind the Miller-Orr Model of Cash
3. Calculate total currents assets and current liabilities for the month of March, 2017 and also find
out net working capital for the same month.
Along with video lectures, PPTs and recommended book(s), additional material has also been provided
on VULMS in different lessons. You can view these supplements on VULMS under the tab of “lessons”
along with PPTs.
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kindly discuss and upload solution
Jawad bhai lets start discussion..
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koi tu help karen..... lagta hey sab ko assignment ati hey , koi help karny k ley tayar hi nahi
aoa you have done assignment
a)Cash budget For Jan 37,100 Feb 71,800 and March 104,000 PKR.
b) The company should invest PKR 94,000 in Marketable securities according to M-O model
c) Working on it right now.
current Assets 363,000
current liabilities 93,000
NWC for March 270,000
Anyone else got same answers????
kindly guide us kaisai kia apne
total sales nov 100,000, dec 105,000, jan 107,000, feb 109,000,march 110,000
loan kahan enter kerainge interest payment k sath solve kerk cash budget mai someone plz help
anyone plz upload full solution