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4. CASH MANAGEMENT IN BRIDGETOWN You are a financial analyst in the Bridgetown Foundation-a public service agency in Chicago that provides specialized mental care services to the poor. The foundation's financial resources are mainly from various state and federal grants and business or individual donations. In a recent financial audit, an independent auditor suggested the foundation explore the possibility of investing in the market as an additional revenue source. You are assigned the responsibility of analyzing the foundation's cash flows to determine whether such a possibility exists and, if it does, how much the foundation should invest Page 10B FINANCIAL MANAGEMENT IN THE PUBLI and what the investment strategy should be. You pull out the cash flow information for the last three years as shown in Table 8.7. Table 8.7 Monthly Cash Flows: Bridgetown Foundation ($) Cash balance (January 1st) Receipts Disbursements Net cash flow, January Cash balance (February ist) Receipts Disbursements Net cash flow, February Cash balance (March ist) Receipts Disbursements Net cash flow, March Cash balance (April ist) Receipts Disbursements Net cash flow, April Cash balance (May ist) Receipts Disbursements Net cash flow, May Cash balance (June 1st) Receipts Disbursements Net cash flow, June Cash balance (July 1st) Receipts Disbursements Net cash flow, July Cash balance (August 1st) Receipts Disbursements Two years ago Last year 610,000 1,245,000 865,000 873,650 1,050,000 930,000 -185,000 -56,350 425,000 1,188,650 250,000 250,500 240,000 240,480 10,000 10,020 435,000 1,198,670 300,000 303,000 280,000 282,800 20,000 20,200 455,000 1,218,870 570,000 575.700 325,000 328,250 245,000 247.450 700,000 1,466,320 1,096,000 1,106,960 320,000 323,200 776,000 783.760 1,476,000 2,250,080 134,000 135.340 320,000 323,200 -186,000 -187,860 1,290,000 2,062,220 280,000 282,800 508,000 513,080 -228,000 -230,280 1,062,000 1,831,940 370,000 373.700 325.000 328,250 Current year 2,016,770 871,903 928,140 -56,237 1,960,533 249,999 239,999 10,000 1,970,533 302,394 282,234 20,160 1,990,692 574,549 327,594 246,955 2,237,647 980,500 945,000 35,500 2,273,147 135,069 322,554 -187,484 2,085,663 282,234 512,054 -229,819 1,855,844 372,953 327.594 1. Page 110 Net cash flow, August Cash balance (September 1st) Receipts Disbursements Net cash flow, September Cash balance (October 1st) Receipts Disbursements Net cash flow, October Cash balance (November ist) Receipts Disbursements Net cash flow, November Cash balance (December ist) Receipts Disbursements Net cash flow, December Average monthly Beginning cash balance Receipts Disbursements Net cash flow 45,000 45,450 1,107,000 1,877,390 285,000 287,850 315,000 318,150 -30,000 -30,300 1,077,000 1,847,090 270,000 272,700 335,000 338,350 -65,000 -65,650 1,012,000 1,781,440 892,000 900,920 320,000 323,200 572,000 577,720 1,584,000 2,359,160 116,000 117,160 455,000 459,550 -339,000 -342,390 45,359 1,901,203 287,274 317,514 -30,239 1,870,963 272,155 337,673 -65,519 1,805,445 899,118 322,554 576,565 2,382,009 116,926 458,631 -341,705 936,083 1,693,903 452,333 456,690 399,417 392,376 52,917 64,314 2,029,204 445,423 443,462 1,961 1. Create a cash budget for the next year. Use the proper forecasting techniques (from Chapter 1) and defend your reasoning for your choice of technique. 2. Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance. 3. Do you see any investment opportunities for the foundation's cash? If yes, develop an investment strategy for the foundation. 4. CASH MANAGEMENT IN BRIDGETOWN You are a financial analyst in the Bridgetown Foundation-a public service agency in Chicago that provides specialized mental care services to the poor. The foundation's financial resources are mainly from various state and federal grants and business or individual donations. In a recent financial audit, an independent auditor suggested the foundation explore the possibility of investing in the market as an additional revenue source. You are assigned the responsibility of analyzing the foundation's cash flows to determine whether such a possibility exists and, if it does, how much the foundation should invest Page 10B FINANCIAL MANAGEMENT IN THE PUBLI and what the investment strategy should be. You pull out the cash flow information for the last three years as shown in Table 8.7. Table 8.7 Monthly Cash Flows: Bridgetown Foundation ($) Cash balance (January 1st) Receipts Disbursements Net cash flow, January Cash balance (February ist) Receipts Disbursements Net cash flow, February Cash balance (March ist) Receipts Disbursements Net cash flow, March Cash balance (April ist) Receipts Disbursements Net cash flow, April Cash balance (May ist) Receipts Disbursements Net cash flow, May Cash balance (June 1st) Receipts Disbursements Net cash flow, June Cash balance (July 1st) Receipts Disbursements Net cash flow, July Cash balance (August 1st) Receipts Disbursements Two years ago Last year 610,000 1,245,000 865,000 873,650 1,050,000 930,000 -185,000 -56,350 425,000 1,188,650 250,000 250,500 240,000 240,480 10,000 10,020 435,000 1,198,670 300,000 303,000 280,000 282,800 20,000 20,200 455,000 1,218,870 570,000 575.700 325,000 328,250 245,000 247.450 700,000 1,466,320 1,096,000 1,106,960 320,000 323,200 776,000 783.760 1,476,000 2,250,080 134,000 135.340 320,000 323,200 -186,000 -187,860 1,290,000 2,062,220 280,000 282,800 508,000 513,080 -228,000 -230,280 1,062,000 1,831,940 370,000 373.700 325.000 328,250 Current year 2,016,770 871,903 928,140 -56,237 1,960,533 249,999 239,999 10,000 1,970,533 302,394 282,234 20,160 1,990,692 574,549 327,594 246,955 2,237,647 980,500 945,000 35,500 2,273,147 135,069 322,554 -187,484 2,085,663 282,234 512,054 -229,819 1,855,844 372,953 327.594 1. Page 110 Net cash flow, August Cash balance (September 1st) Receipts Disbursements Net cash flow, September Cash balance (October 1st) Receipts Disbursements Net cash flow, October Cash balance (November ist) Receipts Disbursements Net cash flow, November Cash balance (December ist) Receipts Disbursements Net cash flow, December Average monthly Beginning cash balance Receipts Disbursements Net cash flow 45,000 45,450 1,107,000 1,877,390 285,000 287,850 315,000 318,150 -30,000 -30,300 1,077,000 1,847,090 270,000 272,700 335,000 338,350 -65,000 -65,650 1,012,000 1,781,440 892,000 900,920 320,000 323,200 572,000 577,720 1,584,000 2,359,160 116,000 117,160 455,000 459,550 -339,000 -342,390 45,359 1,901,203 287,274 317,514 -30,239 1,870,963 272,155 337,673 -65,519 1,805,445 899,118 322,554 576,565 2,382,009 116,926 458,631 -341,705 936,083 1,693,903 452,333 456,690 399,417 392,376 52,917 64,314 2,029,204 445,423 443,462 1,961 1. Create a cash budget for the next year. Use the proper forecasting techniques (from Chapter 1) and defend your reasoning for your choice of technique. 2. Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance. 3. Do you see any investment opportunities for the foundation's cash? If yes, develop an investment strategy for the foundation

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