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Precision Machines
Read the following case study:
Precision Machines is preparing a financial plan for the next six months to determine the financial needs of the company. The historical analysis of the company’s sales shows that the company’s total sales are 30% cash sales and 70% credit sales.  Further analysis of credit sales shows that the company receives 50% of the credit sales one month after the sale and the remaining 50% in the second month after the sale. This means the cash collections from sales are 30% in the first month of the sale, 35% in the second month, and 35% in the third month. 
The materials purchased by the company amounts to 50% of the sales for the month.  The company pays for the purchases one month after the initial purchase. The company likes to maintain a cash balance of $5,000. The cost of borrowing is 10%.  The company plans to pay off the loan whenever there is a surplus and borrow when there is a deficit. 
The attached spreadsheet shows revenues (sales), expenses, capital expenditures, and other expenses for Precision Machines’ next six months.  Using the information given on the spreadsheet, prepare a cash budget for January through June and determine the cash surplus, deficit, and the financing needs of the company. 

Recommend a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.

 
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