Melissa Becker is chief financial officer of Valero Technology, and is responsible for the company’s budgeting process. Becker’s staff is preparing the Valero budget for 20X6. The starting point is the statement of cash flows of the current year, 20X5, which follows:
1. Prepare the Valero Technology cash budget for 20X6. Date the budget simply “20X6” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 20X6 to be the same as 20X5, but with the following changes: (pp. 236–277)
a. In 20X6, the company expects a 10% increase in collections from customers, a 5% increase in purchases of inventory, and a doubling of additions to property and equipment.
b. Operating expenses will drop by $2,000.
c. There will be no sales of investments in 20X6.
d. Becker plans to end the year with a cash balance of $3,000.
2. Does the company’s cash budget for 20X6 suggest that Valero is growing, holding steady, or decreasing in size? (Challenge)
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