Part I: Executive Summary
Alpine Wear, Inc.’s bank has asked major loan customers for the estimate of their borrowing requirements for the remainder of 2000 and the first half of 2001. Therefore, as an assistant of the company’s treasurer, our task is to prepare a cash budget and estimate the firm’s probable financing requirement before the president has a meeting with the firm’s bankers. After preparing a cash budget for Alpine Wear, Inc., we recommend the firm should keep on track of forecasted level, use the old 25-65-10 pattern, and take a $400,000 line of credit from the firm’s bank.
Part II: The Initial Cash Budget
Alpine Wear, Inc.'s sales are seasonal, peaking in the months of January through June. Roughly 25 percent of the firm’s customers take the discount, 65 percent pay within thirty days, and 10 percent pay late (about sixty days after the invoice date). The firm presently has a cash balance of $300,000 and wants to maintain a minimum cash balance of $300,000. Additional borrowing necessary to maintain that minimum balance is estimated in the final section of Table 1 (attached worksheet).
The Cash surplus or Loan requirement line on Alpine Wear's cash budget shows that loans are required from January to April, and surpluses are expected during May and June. Specific amounts are showed as the table below.
| Surplus Cash or Loans Outstanding |
January | ($184,650) |
FebruaryMarch | ($261,227) |
March | ($317,901) |
April | ($44,830) |
May | $417,983 |
June | $359,675 |
Also, the firm’s treasurer decided that a daily cash budget for the month of January should be developed. It means that Alpine Wear, Inc. can borrow or pay off loans on a daily basis, so the amount of $184,650 borrowed during January would be done on a daily basis, as needed, as during April the $317,901 loan that existed at the beginning of the month would be reduced daily to the $44,830 ending balance, which, in turn, would be completely paid off during May....