Case Analysis Of Alpine Wear

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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…show more content…
This borrowing is not shown specifically at the beginning when it took place. Therefore, the budget can not accurately forecast financing needs. If the outflows were clustered at the beginning of the month and collections were heaviest towards the end of the month, it would understate the funds needed. In order to correct inaccuracies Alpine Wear should make a daily budget for the actual cash control. Daily cash budgets are more essential as they make sure the company has the cash on hand and loans are satisfactory enough to meet actual, daily, cash needs, not…show more content…
An example of such would be U. S. Treasury bills and Commercial Paper. U.S. Treasury bills are default free, mature between 91 days to a year, and have a rate of return of 0.07%. CP has a low default risk, matures up to 270 days, and a rate of return at 0.17%. If a company had cash balances in the millions compared to Alpine, i would suggest to invest in instruments with a bigger rate of return because they have the flexibility to risk some cash without damaging its operations. Examples of such instruments would be, common stocks, preferred stocks, and even possibly corporate bonds. Liquidity becomes less of an issue if forecasts showed cash surpluses for all future months, going out indefinitely. However, one should consider that shorter investments do not usually yield as much as longer

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