Deer Park

Introduction

The case is about Deer park, a resort in West Virginia and their current forecast of cash flows for the next few months. Deer park 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 affect Deer park in the near future.

1. Should the resort’s depreciation expense of $30,000 per month be considered in your cash budget? Explain.

The depreciation expense should not be considered in the cash budget. Depreciation is a non-cash expense used as a tax benefit on the income statement. No cash is actually being spent on the item that is being depreciated, and thus does not belong on the cash flow statement.

2. Prepare a cash budget for the period October through March.

Cash in (000s) | | | | | | | |

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| September | October | November | December | January | February | March |

Sales | 448.00 | 608.50 | 370.30 | 257.40 | 178.20 | 202.40 | 288.20 |

Collections | | | | | | | |

1st Month (70%) | | 426.0 | 259.2 | 180.2 | 124.7 | 141.7 | 201.7 |

2nd Month (30%) | | 134.4 | 182.6 | 111.1 | 77.2 | 53.5 | 60.7 |

TOTAL RECEIPTS | | 560.4 | 441.8 | 291.3 | 202.0 | 195.1 | 262.5 |

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