Digital Solutions Inc is preparing its cash budget for 2016. Digital ended 2015
ID: 2459137 • Letter: D
Question
Digital Solutions Inc is preparing its cash budget for 2016. Digital ended 2015 with cash of $81 million, and managers need to keep a cash balance of at least $75 million for operations. Collections from customers are expected to total $11,284 million during 2016, and payments for the cost of services and products should reach $6,166 million. Operating expense payments are budgeted at $2,543. During 2016, Digital expects to invest $1,825 million in new equipment and sell older assets for $115 million. Debt payments scheduled for 2016 will total $597 million. The company forecasts net income of $890 million for 2016 and plans to pay dividends of $338. Prepare Digital Solutions cash budget for 2016. Will the budgeted level of cash receipts leave Digital with the desired ending cash balance of $75 million, or will the company need additional financing? If it does, how much will it need? Please prepare a cash budget.
Explanation / Answer
The cash budget is presented below:
So, the company will need additional financing of $ 64 million.
Particulars Amount $ million Beginning Cash Balance 81 Add: Budgeted Cash Receipts: Collections from customers 11,284 Sale of older assets 115 Total Cash Available for Use 11,480 Less: Cash Disbursements Cost of services and products 6,166 Operating expenses 2,543 New equipment 1,825 Debt Payments 597 Payment of dividends 338 Total Disbursements 11,469 Cash Surplus/(Deficit) 11 Financing: Borrowing 64 Net Cash from Financing 64 Budgeted Ending Cash Balance 75