# A Monthly Cash Budget, And Various Sensitivity Analysis Essay

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In this case study, we prepared a monthly cash budget, daily cash budget, and various sensitivity analysis in order to persuade a bank to offer a credit line to Alpine Wear, of approximately \$350,000. Because of a recent tightening of credit, bankers have been asking clients to estimate borrowing needed for the rest of the current year, 2000, and the first half of 2001. Therefore, we have created a monthly cash budget January-June, and a daily cash budget for all of January. We are hoping to receive a credit line of about \$350,000. However, some background information may be needed in order to do so.

Alpine Wear is a company that operates seven days a week. They have strict sale policy of 2/10, net, 30. In other words, if it the account is paid within 10 days, the customer receives a 2% discount on their purchases. If it is not paid within 10 days, it is due in 30 days. Alpine Wear tracts that about 30% of customers take the discount offer, 55% of customers pay within that thirty days, and 15% pay late. They also have various accounts for cash disbursements that are paid for on a certain day of the month.
We were given various amounts of information regarding how to calculate the daily cash budget for January. Alpine Wear assumes that sales are made at a constant rate, daily. Customers using the discount pay on day ten, while others take the full thirty days given to pay. On the last day of the month, Alpine Wear will begin to collect December’s late sales, as well as January’s net sales. On the 10th of every month, the lease payment is due. Labor costs are paid on the 2nd and 17th of every month. Materials purchased are paid for on the 10th, while interest expenses are paid for on the 5th. It is required that Alpine Wear has a...

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... After analyzing projections and the sensitivity of those projections, it would seem reasonable for Alpine Wear to ask for a \$500,000 credit line from the bank. This would give Alpine a large buffer compared to the projected need. Also it would be adequate in covering more than reasonable drops in projected sales. As shown in the sensitivity analysis, many variables can affect cash flows. With all of those taken into account and the detailed projected budgets, it does not seem unreasonable to ask the bank to accept a request for a \$500,000 credit line to Alpine Wear. There is far horizon of sales and the company has shown that it will be in a positive financial position in approximately 3 months. In closing, this credit line would allow Alpine to comfortably borrow while steadily increasing net cash flows in 5 of the next 6 months and decreasing the risk for the bank

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