Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $5,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount. The firm has no bad debts. Purchases for next month's sales are constant at 50% of projected sales for the next month. "Other payments," which include wages, rent, and taxes, are 25% of sales for the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the month.

Net cash flow $1,210

Explanation:

Budgeted nonthly sales $5,000

Constant monthly purchase 50%

Other payments: 25%

Sales Month, Next Month

Payment pattern: 40% 60%

Discount: 2%

Last month; Current month; Next month

CASH BUDGET:

Sales $5,000 $5,000 $5,000

Collections (same month's sales)

[ 0.40 ×$5,000 ×(1- 0.02) ] $1,960

Collections (last month's sales)

( 0.60 ×$5,000 ) $3,000

Total collections $4,960

Purchases payments 2,500

Add Other payments 1,250

Total payments $3,750

Net cash flow $1,210

(Total collections $4,960-Total payments $3,750 )

answer; rapid growth in buyer demand and high buyer switching cost;