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Day 7-Cash Budgets-TVM

Day 7-Cash Budgets-TVM - Day7 Chapter4: Chapter5:...

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Business Management 201 Day  7 Chapter 4: Part 3—Financial Forecasting Chapter 5: Part 1—Time Value of Money September 21, 2011

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Day 7 Agenda 2) New TA Schedule: Three TA Open Lab Sessions—Tuesday 2:00 PM-3:00 PM   in 251 TNRB; Thursday 11:00 AM- 12:00 PM in 3108 JKB;  Friday 11:00 AM-1:00 PM 184 TNRB Two TA POW Review Session—Tuesday 7:00 PM -8:00 PM  1) POW Quiz #3: Due Friday at 11:59 PM 2) Chapter 4: Part 3 Discussion—Cash Budgets 3) Chapter 5: Time Value of Money
Budgets Budgets Budget:   a forecast of future events.

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Budgets: Three Key Uses 1) Budgets indicate the amount and  intra-year  timing of  future  financing needs. 2) Budgets provide a basis for  taking  corrective action  if  budgeted and actual figures do  not match. 3) Budgets provide the basis for  performance evaluation .
Cash Budget: Three Steps FIRST: DETERMINE CASH RECEIPTS This usually involves sales projections and historical data  on the collection of receivables (cash vs. credit sales). SECOND: ESTIMATE OUTFLOWS This requires careful analysis of production process (level  or demand-based), logistics, etc.  THIRD: CREATE THE CASH BUDGET Net CF + Beginning Cash Borrowing vs. Repayment

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Cash Budget: Receipts Assume that  all sales are on credit  and that  half  are  collected in the month of sale and  half  the following  month. Actual sales for December were  \$120,000 . Projected sales for January and February are  \$60,000  and  \$80,000 , respectively. Estimate the cash receipts  for January and February.
January February Collections (50% Last Month) \$60,000 \$30,000 Collections (50% Current Month) \$30,000 \$40,000 Total Cash Receipts \$90,000 \$70,000 Cash Budget: Receipts Recall: Dec = \$120,000, Jan = \$60,000, Feb = \$80,000 January Receipts Calculation : \$120,000 in December x 0.50 = \$60,000 \$60,000 in January  x 0.50 = \$30,000 Total January Collections:  \$90,000 February Receipts Calculation : \$60,000 in January  x 0.50 = \$30,000 \$80,000 in February x 0.50 = \$40,000 Total February Collections:  \$70,000

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Cash Budget: Disbursements Monthly Labor = \$50,000 Paid in month incurred (level production) Monthly Materials Purchases = \$35,000 Paid one month after purchase (level production) Estimate Total Monthly Outflows
January February Labor Payments \$50,000 \$50,000 Material Purchases \$35,000 \$35,000 Total Cash Outflows \$85,000 \$85,000 Monthly Labor = \$50,000 paid in month incurred level production Monthly Materials Purchases = \$35,000 paid one month after purchase  level production (every month the same) Cash Budget: Disbursements

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Day 7-Cash Budgets-TVM - Day7 Chapter4: Chapter5:...

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