Describe how to make capital investment decisions.

Describe how to make capital investment decisions.



Please read the relevant parts of your textbook, which refer to cash flow and financial planning.

To avoid any uncertainty regarding his business’ financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months:

March        $100,000  

April           $275,000  

May            $320,000  

June            $450,000  

July             $700,000  

August        $700,000  

September $825,000  

October     $500,000  

November   $115,000  

He has also gathered the following collection estimates regarding the forecast sales:

•Payment collection within the month of sale = 25%

•Payment collection the month following sales = 55%

•Payment collection the second month following sales = 20%

Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:

March     $187,500

April       $206,250

May         $375,000

June        $337,500

July               $431,250

August         $640,000

September $395,000

October $425,000

Additional financial information is as follows:

•Administrative salaries will approximately amount to $35,000 a month.

•Lease payments around $15,000 a month.

•Depreciation charges, $15,000 a month.

•A one-time new plant investment in the amount of $95,000 is expected to be incurred and paid in June.

•Income tax payments estimated to be around $55,000 will be due in both June and September.

•And finally, miscellaneous costs are estimated to be around $10,000 a month.

•Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.

To receive full credit on this assignment, please show all work, including formulas and calculations used to arrive at the financial values.

Your submitted Group Project (150 points) must include the following:

•75 Points. An Excel spreadsheet that contains your group’s monthly cash budget for Cyrus Brown Manufacturing.

•75 Points. A double-spaced Word document of 1–2 pages that contains your answers to the questions listed in the Assignment Guide

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