Case Study 8 Based on the January through June 2010 cash budget, 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.) Maximum monthly loss is in June: -$60,750. The maximum cumulative borrowing balance is $99,000 in February. What does the monthly cash budget reveal that indicates it should probably be extended beyond the original six months’ horizon? The major cash shortfall in June and the seasonality inherent in the firm’s business indicate that a full year’s cash budget should be developed. The monthly cash budget assumes that cash flows occur simultaneously. This is not realistic, of course. Assume, more realistically, that cash outflows occur early in the month and cash inflows occur later in the month. What do you think would happen to the current cash budget’s predictive powers? (NOTE: This question should be answered without preparing a spreadsheet; it is a ‘thought’ question.) The monthly cash budget would understate the need for funds, since outflows would occur before inflows. If you identified any issues in #3 above, what do you think would resolve them? HINT: There is a specific answer I am expecting, short and sweet, and it is in the case study narrative. Use a daily cash budget to predict cash flows. The need for cash could then be more precisely forecasted. The monthly cash budget is good for planning; the daily cash budget is suited for management control. In the daily cash budget, is the maximum borrowing requirement the same as that in the monthly cash budget? Does the end-of-January borrowing requirement in the daily budget match the end-of-January borrowing requirement in the monthly budget? In both