Case Study 7 Deerpark Financial

Michael O'Connor January 15, 2014

Financial Management Case Study 2

Introduction

The case is about Deerpark, a resort in West Virginia and their current forecast of cash flows for the next few months. Deerpark is currently coming upon the off season for their business, where they usually run a cash deficit but is able to make up for it during the peak season. The cash flows should have been sufficient, but three new concerns have come up which have left the manager, Patrick Harding concerned. The first issue is renovations which have gone from an estimate of $420,000 up to $500,000 worth of work. Second is the loss of the long term sales manager, and the replacement does not seem to be as comfortable with obtaining business. The third issue causing concern is a recession that has hit the local area and could effect Deerpark in the near future.

I believe depreciation is a fixed cost and cannot be changed but I believe it should be left out of the cash budget. Depreciation is just the lowering of the value of an asset over its useful life. While it technically is an expense, it is one where cash does not actually move, rather a journal entry is made to show where the full purchase value of an asset has gone and is accounted for. This means depreciation can effect bottom line profits, but for a cash budget, I believe it should be left off.

is a great advantage to extending the forecast through until May. Sales are expected to pick up again in the spring months, and should the need to defer payments, showing a strong cash in flow and earnings could help persuade them to say yes.

Based on the projected cash flows, the amount needed to be deferred is $316,150.00 This will be the the expenses incurred in November through January, as well as the secondary payments of expenses for costs incurred in September and October. If this amount is deferred, Deerpark will stay above the minimum balance for each month.

The...