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Alpine Village Clinic Case 8 - MS word file - Graded A+ (use as a guide only)

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1. Yes the clinic needs a line of credit. The monthly cash budget shows that the clinic will
have shortage of cash in the months of January, February and March. Also, the highest
shortage occurs in the month of February where clinic will be in deficit of $99,000. So
keeping in view this deficit the clinic should obtain a line of credit of $100,000 from First
Bank.
2. Please refer to Daily Cash Budget
3. Please refer to Monthly Cash Budget. This item has been colored red under caption of
Interest expense / (income).
4. The target balance is required to meet day to day transactions, in pursuant of
compensating balances, for precautionary reasons and to avail trade discounts offers.
Since the clinic no more requires compensating balances to be maintained at First Bank,
hence the Clinic may cut down its target balance to meet day to day transactions. A sum
of $20,000 seems appropriate in this regard.
5. We can use “billing as percentage of forecast” option available in cash budget model to
analyze impact of these variations. This options helps us to analyze our cash deficit and
surpluses at various forecast levels For example we can set our billing percentage at 90%
to see the effect of 10% lesser billings on cash budget.
6. First we will determine what our expected percentage of bad debts is. Than we multiply
our billing amount good debt percentage to arrive at actual anticipated collection net of
bad debts.
7. A cash surplus should simply be reinvested. Investment should be made keeping in view
of risk, liquidity, maturity and yield factors. Currently First bank is paying 4% on excess
deposit and this option can be excised.
Note: It is assumed that interest is paid / received on 1st day of next month and any excess
cash is invested with First Bank at 4%.

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1. Yes the clinic needs a line of credit. The monthly cash budget shows that the clinic will have shortage of cash in the months of January, February and March. Also, the highest shortage occurs in the month of February where clinic will be in deficit of $99,000. So keeping in view this deficit the clinic should obtain a line of credit of $100,000 from First Bank. 2. Please refer to Daily Cash Budget 3. Please refer to Monthly Cash Budget. This item has been colored red under caption of Interest expense / (income). 4. The target balance is required to meet day to day transactions, in pursu ...
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