What is Precision Machines financial plan for the next six months?

  

Hello I need help with the following:Reviewthe “Precision Machines” document and spreadsheet.Preparea cash budget for Precision Machines in MicrosoftExcel.Createa 1,225-word strategic analysis and include the following:Recommend a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.Explain two economic and market forces that will impact the financial plan of this company.Formatyour documents consistent with APA guidelines.
Precision Machines Team Assignment
FIN/370 Version 10
University of Phoenix Material
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 companys sales shows that the companys 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.
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1
Precision Machines
Student Note: Fill in the light yellow cells
Data:
Annual Cost of borrowing
Minimum Cash Balance
Beginning Cash Balance
Revenues (Sales)
Cash Collections
First Month (30%)
Second Month (35%)
Third Month (35%)
Total Collections
Cash Disbursements
Material Purchases
Salaries
Wages
Other Expenses
Capital Expenditure
Dividends
Interest
Total Disbursements
Cash flows
Net cash flows
Cumulative cash flows
Minimum Cash Balance
Cash Surplus or (Deficit)
Recommendations:
November
December
January
February
$40,000.00
$50,000.00
$48,000.00
$55,000.00
November
December
January
February
6,000.00
3,000.00
6,000.00
3,500.00
10.00%
$5,000.00
$7,500.00
March
April
May
June
$35,000.00
$50,000.00
$65,000.00
$40,000.00
March
April
May
June
6,000.00
3,000.00
6,000.00
3,200.00
6,000.00
3,500.00
6,000.00
3,000.00
45,000.00
1,000.00
1,000.00

Introduction:

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Financial planning is a crucial component of any successful business plan. Companies need to understand their financial needs, both present, and future. Precision Machines is a company that wishes to understand its financial position for the next six months to determine its financial requirements.

Description:

The Precision Machines planning team is currently reviewing data on their sales, material purchases, and expenses for an upcoming six-month period. The data shows that 30% of sales are cash, while 70% are credit sales. Of those credit sales, 50% are collected one month after the sale, and the remaining 50% is collected two months after the sale. The company maintains a cash balance of $5,000 and pays for its material purchases one month after the initial purchase.

The Precision Machines planning team needs to prepare a cash budget for January through June and determine the cash surplus, deficit, and financing needs for the company. Additionally, the team must recommend a cash management strategy that will minimize financing costs and increase cash flows for the company. Economic and market forces that will impact the financial plan of Precision Machines must be identified. The plan needs to follow APA guidelines, and a strategic analysis must be prepared about the findings.

Objectives:

To prepare a cash budget for Precision Machines to determine financial needs for the next six months.
To analyze economic and market forces that may impact the financial plan of Precision Machines.
To recommend a cash management strategy that can minimize financing costs and increase cash flows for Precision Machines.

Learning Outcomes:

After completing this assignment, students will be able to:
Prepare a cash budget for a company by analyzing its historical sales data and other financial information.
Analyze economic and market forces that may impact the financial plan of a company.
Recommend a cash management strategy that can minimize financing costs and increase cash flows for a company.
Format financial documents in accordance with APA guidelines.

Solution 1:

Cash Management Strategy for Precision Machines

Precision Machines needs to adopt an efficient cash management strategy that will minimize their financing costs and increase cash flow for the company. The company must first analyze their cash inflows and outflows in the next six months to identify the financing needs of the company. Based on the data provided, the company needs to concentrate on collecting their credit sales to improve their cash flow. The company needs to collect 50% of their sales in the second month after the sale.

To improve cash flow, Precision Machines should consider implementing cash discounts to encourage their customers to pay their credit sales within the first month. If the company offers a 2% cash discount on credit sales paid within the first month, they can improve their collections and reduce the time it takes to receive payments.

Additionally, the company can use their excess cash balance of $5,000 to invest in short-term securities to earn interest income. The company can invest in Treasury bills or money market funds to earn a return on their idle cash. By following these strategies, Precision Machines can minimize their financing costs and improve their cash flows.

Solution 2:

Economic and Market Forces Impacting Precision Machines’ Financial Plan

Precision Machines needs to analyze the economic and market forces that will impact their financial plan in the next six months. Two significant economic and market forces are inflation and competition.

Inflation can impact the company’s expenses and revenues in the future. If the inflation rate increases, Precision Machines’ expenses will rise, including their material purchases and other expenses, which will affect their net income. Additionally, if inflation affects their customers, they may reduce their purchases of the company’s products, which will reduce sales revenue.

Competition is another factor that can impact Precision Machines’ financial plan. The market for machine parts is highly competitive, with several companies offering similar products at competitive prices. Precision Machines needs to invest in product development and marketing to differentiate their products and gain a competitive advantage. If the company does not innovate and compete effectively, they may lose market share, which will impact their sales and overall financial performance.

Suggested Resources/Books:
1. “Financial Management: Theory and Practice” by Eugene F. Brigham and Michael C. Ehrhardt
2. “Cash Management: Corporate Strategies for Profit” by Bill Reeb
3. “Financial Forecasting, Analysis, and Modelling: A Framework for Long-Term Forecasting” by Michael Samonas and Irene Siousioura

Similar asked questions:

1. How can businesses utilize cash budgeting to improve their financial situation?
2. What factors should businesses consider when creating a cash management strategy?
3. How can a company minimize finance costs while increasing cash flow?
4. What role does economic and market analysis play in financial planning for businesses?
5. What are some best practices for managing working capital?

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