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To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months:
He has also gathered the following collection estimates regarding the forecast sales:
Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:
Additional financial information is as follows:
Use Microsoft Excel to prepare the monthly cash budget.
Based on your cash budget findings, answer the following questions:
Will the company need any outside financing?
What is the minimum line of credit that CBM will need?
What do you think of CBM's cash position during the budget period? Do you see any concerns for the company in this regard?
If you were a bank manager, would you want CBM as your client? Why or why not?