Hospitality 260 Fall 20 CAPSTONE PROJECT PORTFOLIO Section 10: Cash Management A

Question

Hospitality 260 Fall 20 CAPSTONE PROJECT PORTFOLIO Section 10: Cash Management A. Perkins, owner of The Bates Motel, has asked you to project her cash on hand over the next few months based on the following information December January February March $40,000 $40,000 $50,000 $75,000 15,000 17,000 18,000 30,000 15,000 15,000 22,000 37,000 0 Sales Other cash expenses Capital purchases 0 10,000 Sales: 60% of her sales are cash, while the remaining 40% are credit sales. One half of the credit sales are collected in the month of the sale and one half in the following month. Inventory purchases: 80% of the inventory purchases are paid in the month of the purchase while 20% are paid in the following month. All other: The other cash expenses and capital purchases are paid for during the month indicated. Other: Assume that the cash balance at the beginning of January is $5,000. Required: 1) Prepare a monthly cash budget using the cash receipts and disbursements approach for the months of January-March. Your response should show the budget for each of the three months. 2) What would you recommend that Ms. Perkins do with her excess cash at the end of each month? 3) Would your response to #2 be different if her excess cash were 10 times higher at the end of each month? If so what would you recommend?

Explanation / Answer

2)Excess cash amount shall be invested at high invest rate
3)whether it is 10 times also Excess cash amount shall be invested at high invest rate

Preparation of cash budget for three months January Feb March Cash Balance 5000 13400 11600 cash sales 24000 30000 45000 Previous month credit sales 8000 10000 15000 Previous month credit sles 8000 8000 10000 Previous month inventory purchase -3000 -14400 -3600 Previous month inventory purchase -13600 -3400 -24000 Other Cash expenses -15000 -22000 -37000 Capital purchase 0 -10000 0 Closing cash balance($) 13400 11600 17000

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