Berlin Inc. expects sales of $300,000 during each of the next three months. It will make monthly purchases of $180,000 during this time. Wages and salaries are $30,000 per month plus 5% of monthly sales. The firm expects to make a tax payment of $60,000 in the first month and a $45,000 purchase of fixed assets in the second month and to receive $24,000 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 equal zero.
a. Construct a cash budget for the next three months.
b. Berlin is unsure of the level of sales, but all other figures are certain. If the most pessimistic sales figure is $240,000 per month and the most optimistic is $360,000 per month, what are the minimum and maximum monthly ending cash balances that the firm can expect for each month?
c. Discuss how the financial manager can use the data in parts (a) and (b).