Page 267 - DMGT207_MANAGEMENT_OF_FINANCES

Management of Finances

Notes Table 2: Collection Pattern of Receivables

Percent of Credit Sales
Months Collected in Same Collected One Month Collected Two Months
Month Later Later
November 0.20
December 0.60 0.15
January 0.20 0.60 0.15
February 0.30 0.60 0.50
March 0.25 0.60 0.10
April 0.25 0.60 0.10
May 0.15 0.60 0.20
June 0.20 0.60 0.15
July 0.10 0.60 0.25
August 0.20 0.60 0.15
September 0.15 0.60 0.20
October 0.20 0.60 0.15
November 0.15 0.60
December 0.10

Table 3: Debt Forecast, Last Day of Each Month, and Average Monthly Interest Rates

Months Interest-Bearing Debt (,000s) Interest Rate
December 1600
January 1800 0.120
February 1500 0.100
March 1600 0.110
April 1500 0.100
May 1600 0.110
June 1500 0.100
July 1500 0.090
August 1400 0.080
September 1300 0.090
October 1400 0.080
November 1200 0.095
December 1600 0.095

The final information for the forecast involves establishing a safety level. The firm requires
cash or equivalents equal to 20 per cent of the monthly cash operating expenses. The firm
began the year with $6,10,000 in the form of cash and equivalents.

Question
Prepare a statement showing cash forecast for the next 12 months, and in case where firm
needs additional cash, draw the recommendation with the tune of credit that must be
arranged from bank.

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