Write a brief essay on" Deficits and Debt��"Do We Spend Too Much"© BrainMass Inc. brainmass.com October 25, 2018, 8:22 am ad1c9bdddf
We probably need to take a three pronged approach to this question. The three prongs would include government spending, spending by business, and consumer spending. Can we generalize and ask ourselves if each entity spends too much, and we would probably conclude that we do spend inordinately. But we probably need to dig a bit deeper to determine why and how we spend, and what the economic implications are.
First, from a government perspective, we all agree that the government spends far beyond its means. And many believe we may be another Greece, Spain, Italy, Ireland, etc. in the making. The government currently runs a deficit exceeding $16 billion, so the emphasis is on spending too much, with issues surrounding making cuts in the budget which will (painfully) affect many areas, but appear to be focused upon seniors and the middle class. For all of the talk about protecting the middle class by taxing higher income earners, the sad truth is that there are not enough high income earners to offset the amounts needed by the government to bring the budget into some semblance of order. And seniors are being viewed as drains on an already taxed system of medical expenses and social security payments due to the fact that more are living longer, and requiring more in the way of health care. All of this is occurring as prices increase, and economic pressures to survive increase.
So what is the answer to the perceived over spending? Should the government cut back spending in this period of economic uncertainty? Ot should it look for ways to spend in order to strengthen the economy? There are two schools of thought here: one is it should reduce spending (the Republican view) in order to reduce the effect and intrusion of government into our lives. The other is that government spending is necessary to help get the economy stronger and reducing unemployment, as well as instilling trust and integrity into what is perceived as a failed economic model (or seriously flawed).
But we could also argue that our representatives are focused on the wrong things. Perhaps now would be a good time to focus on producing revenue to offset the need for higher spending. Areas such as taxing on line transactions would yield millions/billions over the next 10 years (Ebay has forecast e-commerce going to a $200 trillion market segment by 2020). ...
The principle of supply and demand requires a review of the theories of consumption and earning power. Does government spend and consume too much? Are businesses and consumers guilty of the same behavior. We attempt to answer these questions within this discussion --- decide for yourself!
Keafer Manufacturing Working Capital Management
I am stumped on question number 4. I've put in several different growth rates, but they all show short term financing is needed. Please let me how to come up with the correct growth rate that will result in zero need for short term financing.
I've attached an Excel file of everything you'll need to work through the problems listed below.
KEAFER MANUFACTURING WORKING CAPITAL MANAGEMENT
You have recently been hired by Keafer Manufacturing to work in its established treasury department. Keafer Manufacturing is a small company that produces highly customized cardboard boxes in a variety of sized for different purchasers. Adam Keafer, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company basically puts all receivables in one pile and all payables in another, and a part time book keeper periodically comes in and attacks the piles. Because of this disorganized system, the finance area needs work, and that's what you've been brought into.
The company currently has a cash balance of $149,500, and it plans to purchase new machinery in the third quarter at a cost of $260,000. The purchase of the machinery will be made with cash because of the discount offered for a cash purchase. Adam wants to maintain a minimum cash balance of $90,000 to guard against unforeseen contingencies. All of Keafer's sales to customers and purchases from suppliers are made with credit, and no discounts are offered or taken.
The company had the following sales each quarter of the year just ended:
Q1 Q2 Q3 Q4
$ 735,000.00 $ 761,000.00 $ 817,000.00 $ 09,000.00
After some research and discussions with customers, you're projecting that sales will be 8 percent higher in each quarter next year. Sales for the first quarter of the following year are also expected to grow at 8 percent. You calculate that Keafer currently has an accounts receivable period of 57 days and an accounts receivable balance of $553,000. However, 10 percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely that this portion will never be collected.
You've also calculated that Keafer typically orders supplies each quarter in the amount of 50 percent of the next quarter's projected gross sales, and suppliers are paid in 53 days on average. Wages, taxes, and other costs run about 25 percent of gross sales. The company has quarterly interest payment of $148,000 on its long-term debt. Finally, the company uses a local bank for its short term financial needs. It currently pays 1.2 percent per quarter on all short term deposits.
Adam has asked you to prepare a cash budget and short term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs.
1. Use the numbers given to complete the cash budget and short term financial plans.
2. Rework the cash budget and short term financial plan assuming Keafer changes to a minimum cash balance of $70,000.
3. Rework the sales budget assuming an 11 percent growth rate in sales and a 5 percent growth rate in sales. Assume a $90,000 target cash balance.
4. Assuming the company maintains its target cash balance at $90,000, what sales growth rate would result in a zero need for short term financing? To answer this question, you may need to set up a spreadsheet and use the "solver" function.