Construct a monthly cash budget for the clinic for the

period January
Construct a monthly cash budget for the clinic for the period January

Question

Has anyone encountered these questions before? I'm struggling with 6-10.

Has anyone encountered these questions before? I'm struggling with 6-10...

1. Construct a monthly cash budget for the clinic for the period January through June 2010.
What is the maximum monthly loss during the six-month planning period? What is the
maximum cumulative borrowing balance? (For purposes of this question, disregard any
interest payments on short-term bank loans or interest received from investing surplus
funds.)
2. The monthly cash budget you have prepared assumes that all cash flows occur on the
same day each month. Suppose the clinic's outflows tend to cluster at the beginning of
the month, while collections tend to be heaviest toward the end of each month.
1. How would this imbalance affect the validity of the monthly budget?
2. What could be done to correct any inaccuracies that might occur?
3. Construct the clinic's daily cash budget for January. Does it indicate the same maximum
borrowing requirement for the month as does the monthly budget? Does the end-of-
January borrowing requirement in the daily budget match the end-of-January borrowing
requirement in the monthly budget? If not, explain the difference.
4. Should seasonal variations be incorporated into the clinic's target cash balance? In other
words, should the balance be higher during months when cash needs are greater?
5. The only receipts shown on the clinic's cash budget are collections. What other types of
cash inflows could occur?
6. Consider the interest paid on short-term borrowings and earned on short-term
investments. Modify the monthly portion of the model to include these cash flows. Do
these flows have a significant impact on estimated borrowing requirements?
7. The clinic's cash management policy is to invest any surplus funds in marketable
securities.
1. Can you suggest an investment policy that would provide liquidity and safety yet
offer the clinic a reasonable return on its investment? Specifically, describe the
types of securities, the desired maturities, the espected returns, and the risks
that would be involved.
2. Would your suggestions be the same for a business whose cash balances were
projected to be in the millions of dollars as opposed to thousands of dollars?
8. What would be the impact on the monthly net cash flows if actual billings from November
2009 to June 2010 were 20 percent below the forecasted amounts? What if they were
50 percent below the forecasted amounts? In your answers, assume that purchases and
labor costs, as well as other expenses, cannot be adjusted downward during this period
even though realized volume was below that forecasted.
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 9. Suppose the clinic's third-party payers changed their payment patterns and began
paying as follows: 10 percent in the month of sale, 20 percent in the following month,
and 70 percent in the second month versus the old 20-20-60 pattern. How large a credit
line would the clinic require?
10. On the basis of your analyses, how large a credit line would you recommend that the
clinic seek from First Bank?

Construct a monthly cash budget for the clinic for the period January

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