1. Select an assumption for each the following values that fall between the minimum and maximum indicated.

Assumption	Minimum	Maximum
a. Sales in month 1	$150,000	$250,000
b. Increase/decrease in sales month 2	-$5,000	$10,000
c. Increase/decrease in sales month 3	-$5,000	$10,000
d. Increase/decrease in sales month 4	$40,000	$60,000
e. Increase/decrease in sales month 5	$10,000	$30,000
f. Increase/decrease in sales month 6 ( compared to month 3 )	-$5,000	$10,000
g. Portion of sales that are cash sales or are collected in month of sale	25%	35%
h. Portion of sales for which receivables are collected in the first month following the month of sale	40%	50%
i. Fixed monthly expenses	$60,000	$70,000
j. Variable monthly expenses (percentage of following month’s sales	60%	70%
k. Portion of variable expenses that are paid in cash or in month of purchase	35%	45%
l. Portion of variable expenses that are paid in the first month following the month of purchase	40%	50%
m. Interest payment, in months 2 and 5	$20,000	$30,000
n. Dividend payment, in months 3 and 6	$10,000	$20,000
o. Semi-annual insurance premium payment in month 4	$15,000	$35,000

Use these assumptions, in addition to those selected above:

Total time 0 accounts receivable: $190000

Total time 0 accounts payable: $56250

Time 0 accounts receivable collected in month 1: $140000

Time 0 accounts receivable collected in month 2: $50000

Time 0 accounts payable paid in month 1: $45000

Time 0 accounts payable paid in month 2: $11250

Expected sales in month 7: $200,000

Beginning cash balance for month 1: $5000

All non-cash sales not collected in either the month of sale or the following month are collected in the second month after the sale, and all variable costs not paid in cash or in the month after purchase or the following month are paid during the second month after purchase.

2. Using the information from question 1, prepare a six-month cash budget for the company.

Your cash budget should include the following lines with appropriate calculation of amounts for each of the six months:

Sales

Cash sales

Accounts receivable collected from the previous month’s sales

Accounts receivable collected from sales two months ago

Total cash inflow

Fixed expenses

Variable expenses

Variable expenses paid in month of purchase

Accounts payable paid in month following purchase

Accounts payable paid in second month after purchase

Interest payments

Insurance payments

Dividend payments

Total cash outflow

Net cash flow for the month

Beginning cash balance

Ending cash balance

Accounts receivable (beginning of month)

Accounts payable (beginning of month)

3. Explain how the information in the “net cash flow for the month” and “ending cash balance” line helps the company’s financial manager in planning for the next six months. Your explanation should be specific to the findings in your cash budget.