Cash Balance for Greenwell Corporation The Greenwell Corporation has a 60-day average collection period and wishes to maintain a $160 million minimum cash balance. Based on this and the information given in the following cash budget, complete the cash budget. What conclusions do you draw?

Question

Cash Balance for Greenwell Corporation The Greenwell Corporation has a 60-day average collection period and wishes to maintain a $160 million minimum cash balance. Based on this and the information given in the following cash budget, complete the cash budget. What conclusions do you draw?

GREENWELL CORPORATION Cash Budget (in millions)
	Q1	Q2	Q3	Q4
Beginning receivables	$240
Sales	150	$165	$180	$135
Cash collections	__________________________________
Ending receivables	_________________________________
Total cash collections
Total cash disbursements	170	160	185	190
Net cash inflow	__________________________________
Beginning cash balance	$45
Net cash infl ow	___________________________________
Ending cash balance	____________________________________________
Minimum cash balance	___________________________________
Cumulative surplus (deficit)	___________________________________

Accepted Answer

Because Greenwell has a 60-day collection period, only sales made in the first 30 days of the quarter will be collected in the same quarter. Total cash collections in the first quarter will thus equal 30/90 = 1/3 of sales plus beginning receivables, or 1/3 × $150 + 240 = $290. Ending receivables for the first quarter (and the secondquarter beginning receivables) are the other 2/3 of sales, or 2/3 × $150 = $100. The remaining calculations are straightforward, and the completed budget follows:

GREENWELL CORPORATION Cash Budget (in millions)
	Q1	Q2	Q3	Q4
Beginning receivables	$240	$100	$110	$120
Sales	150	165	180	135
Cash collections	290	155	170	165
Ending receivables	$100	$110	$120	$90
Total cash collections	$290	$155	$170	$165
Total cash disbursements	170	160	185	190
Net cash inflow	$120	-$5	-$15	-$25
Beginning cash balance	$45	$165	$160	$145
Net cash inflow	120	-5	-15	-25
Ending cash balance	$165	$160	$145	$120
Minimum cash balance	-160	-160	-160	-160
Cumulative surplus (deficit)	$5	$0	-$15	-$40

The primary conclusion from this schedule is that, beginning in the third quarter, Greenwell’s cash surplus becomes a cash defi cit. By the end of the year, Greenwell will need to arrange for $40 million in cash beyond what will be available.

Question 18.S-TP.2: Cash Balance for Greenwell Corporation The Greenwell Corpora...

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