This analysis requires you to demonstrate your skills in budgeting and forecasting Five-year cash forecast and sensitivi

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This analysis requires you to demonstrate your skills in
budgeting and
forecasting
Five-year cash forecast and sensitivity analysis
As noted previously, the Board of Directors for Recycl-able are
comfortable
with the current position of the company. However, they are mindful
of the
dynamic nature of the industry and the likely growth in both
business and
competition in the next few years. The Finance Director has asked
you to
produce a cashflow forecast for the next five years – based on
the
assumptions on the next page - and report the closing cash balance
at the
end of each of the five years.
In addition, the Board would like to understand what happens to the
cash
balance if the following were to take place:
a) Estimated growth for Household Recycling and Industrial
Recycling
was 5% year on year
b) Estimated growth for Household Recycling and Industrial
Recycling
was 7% year on year rather than the projections included in
the
assumptions.
c) One other scenario aspect that you might consider to be worthy
of
investigating.
Finally, the Directors would like you to explain the advantages
and
limitations of the Incremental Budgeting approach used. In
addition, they
would like to understand if there is a different technique that
could be used
and what the benefits and disadvantages of this might be to the
business.
Recycl-able Cash Forecast Assumptions:
The numbers included below are existing values (i.e. year zero):
Cash Inflows: £’000 Household Waste 14,678 Household Recycling
25,789 Industrial Recycling 45,257 Cash Outflows £’000 Staff Costs
5,450 Other Costs 2,459 Interest Payable 250
Year on year growth estimates to be used are: Cash Inflows: %
Household Waste 5.0 Household Recycling 10.0 Industrial Recycling
15.0 Cash Outflows % Staff Costs 5.0 Other Costs 3.0 Interest
Payable 0.0
Gross Margin predictions are: Gross Margins: % Household Waste
6.0 Household Recycling 15.0 Industrial Recycling 12.0
Capital expenditure predictions are: Year £’000 One 320 Two 50
Three 250 Four 125 Five 60
The opening cash balance at the start of year one is
£1,000,000.