Cash Budgeting

Cash Collection

1 month 10%
Credit term 2/10,n/10 2 month 15%
3 month 40%

Q1. For last 6 months July to December

Q2. For first 6 months Jan to June
Q3. For entire year Jan to Dec
Q4. For 5 years Jan 01- Dec 05

Prepare cash budget for last six months

1 Sales for April, May, June are 100,000 135,000 and 170,000
2 COGS is 50% of sales
3 Depreciation is 1000 per month
4 Interest is due in September and December Rs.5,000 each (interest is due at end of each quarters)
5 Selling exp is 10% of sales in first 3 months 10%
6 Salaries of 6000 are due at the end of each month
7 Maintenance exp of 10,000 is paid in December
8 Sales growth per month is 5% 0.05 50%

April May June July August September October

Sales 100,000 135,000 170,000 178,500 187,425 196,796 206,636

COGS 89250 93712.5 98398.125 103318.03125

Cash Collection
10% 1 month $17,000.00 $17,850.00 $18,742.50 $19,679.63
50% 2 month $67,500.00 $85,000.00 $89,250.00 $93,712.50
40% 3 month $40,000.00 $54,000.00 $68,000.00 $71,400.00
 Total Collections

July $124,500.00
f each quarters)

November December

216,968 227,816
108483.93281 113908.129453

$20,663.61 $21,696.79
$98,398.13 $103,318.03
$74,970.00 $78,718.50
CCC= Cash Conversion Cycle

ICP Inventory Conversion Period

DSI Days Scales in Inventory = 365/inventory turnover
DIO Days Inventory Outstanding

ACP Average Collection Period = 365/receivable turnover

-
PDP Payable Deferral Period = 365/payable turnover

Inventory turnover = Sales/avg inventory

Receivable Turnover = Avg Total receivables

Paybales turnover = COGS/Avg payables

Q: Sales 15,000
COGS 8,000

Opening Closing
Receivables
1000 2000
Payables
500 1000
Inventory
400 800

Solution:

Payable turnover COGS/ AVG PAYBALES 10.66667

Receivable Turnover Sales/ Avg Receivables 10

Inventory turnover sales/Avg inventory 25

PDP 365/payable turnover 34.21875

ACP 365/receivable 36.5

 ICP 365/inventory turnover 14.6

CCC ICP+ACP+PDP 16.88125

WACC
(Wd * Rd)
+
(We * Re)

Market Premium
5.50%

Risk Free rate

4.50%

Beta Unlevered
0.85

Tax
40%

Weight Debt Weight Equity D/E Rd Wd*Rd Levered Beta CAPM

(Wd) (We)
0% 100% 0.00 0% 0.00% 0.85 9.17500%
5% 95% 0.05 3% 0.15% 0.8768421053 9.32263%
10% 90% 0.11 4.50% 0.45% 0.9066666667 9.48667%
15% 85% 0.18 6% 0.90% 0.94 9.67000%
20% 80% 0.25 5.50% 1.10% 0.9775 9.87625%
25% 75% 0.33 8% 2.00% 1.02 10.11000%
30% 70% 0.43 9% 2.82% 1.0685714286 10.37714%
35% 65% 0.54 10.80% 3.78% 1.1246153846 10.68538%
40% 60% 0.67 12% 4.88% 1.19 11.04500%
45% 55% 0.82 13.60% 6.12% 1.2672727273 11.47000%
50% 50% 1.00 15% 7.50% 1.36 11.98000%
55% 45% 1.22 16% 9.02% 1.4733333333 12.60333%
60% 40% 1.50 17.80% 10.68% 1.615 13.38250%
65% 35% 1.86 19% 12.48% 1.7971428571 14.38429%
70% 30% 2.33 20.60% 14.42% 2.04 15.72000%
75% 25% 3.00 22% 16.50% 2.38 17.59000%
80% 20% 4.00 23% 18.72% 2.89 20.39500%
85% 15% 5.67 24.80% 21.08% 3.74 25.07000%
90% 10% 9.00 26% 23.58% 5.44 34.42000%
95% 5% 19.00 27.60% 26.22% 10.54 62.47000%
100% 0% 29% 29.00% 0.85 9.17500%
What is the optimum capital structure?
Where WACC is minimum
 L&E 1100 Capital Structure 100%
L/Debt 500 Percentage of debt 0.545455
Equity 600
Rm 10.00%

We*Re WACC

9.17500% 9.17500%
8.85650% 9.00650%
8.53800% 8.98800% Optical Structure
8.21950% 9.11950%
7.90100% 9.00100%
7.58250% 9.58250%
7.26400% 10.08400%
6.94550% 10.72550%
6.62700% 11.50700%
6.30850% 12.42850%
5.99000% 13.49000%
5.67150% 14.69150%
5.35300% 16.03300%
5.03450% 17.51450%
4.71600% 19.13600%
4.39750% 20.89750%
4.07900% 22.79900%
3.76050% 24.84050%
3.44200% 27.02200%
3.12350% 29.34350%
0.00000% 29.00000%
8.98800%