Question

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:

	Q1			Q2			Q3			Q4
Sales	$	145		$	165		$	185		$	215

  
Sales for the first quarter of the year after this one are projected at $160 million. Accounts receivable at the beginning of the year were $63 million. Wildcat has a 45-day collection period.

Wildcat’s purchases from suppliers in a quarter are equal to 45 percent of the next quarter’s forecasted sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 20 percent of sales. Interest and dividends are $12 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $92 million. Finally, the company started the year with a $74 million cash balance and wishes to maintain a $40 million minimum balance.

a-1. Assume that Wildcat can borrow any needed funds on a short-term basis at a rate of 3 percent per quarter and can invest any excess funds in short-term marketable securities at a rate of 2 percent per quarter. Complete the following short-term financial plan for Wildcat. (Enter your answers in millions. A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
  

WILDCAT, INC. Short-Term Financial Plan (in millions)
			Q1			Q2			Q3			Q4
Beginning cash balance		$	40.00		$	40.00		$	40.00		$	40.00
Net cash inflow
New short-term investments
Income from short-term investments
Short-term investments sold
New short-term borrowing
Interest on short-term borrowing
Short-term borrowing repaid
Ending cash balance		$			$			$			$
Minimum cash balance
Cumulative surplus (deficit)		$			$			$			$
Beginning short-term investments		$			$			$			$
Ending short-term investments		$			$			$			$
Beginning short-term debt		$			$			$			$
Ending short-term debt		$			$			$			$

  
a-2. What is the net cash cost (total interest paid minus total investment income earned) for the year under this target cash balance? (A negative answer should be indicated by a minus sign. Enter your answer in millions. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Net cash cost           $  

b-1. Complete the following short-term financial plan assuming that Wildcat maintains a minimum cash balance of $20 million. (Enter your answers in millions. A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
  

WILDCAT, INC. Short-Term Financial Plan (in millions)
			Q1			Q2			Q3			Q4
Minimum cash balance		$	20.00		$	20.00		$	20.00		$	20.00
Net cash inflow
New short-term investments
Income from short-term investments
Short-term investments sold
New short-term borrowing
Interest on short-term borrowing
Short-term borrowing repaid
Ending cash balance		$			$			$			$
Minimum cash balance
Cumulative surplus (deficit)		$			$			$			$
Beginning short-term investments		$			$			$			$
Ending short-term investments		$			$			$			$
Beginning short-term debt		$			$			$			$
Ending short-term debt		$			$			$			$

  
b-2. What is the net cash cost (total interest paid minus total investment income earned) for the year under this target cash balance? (A negative answer should be indicated by a minus sign. Enter your answer in millions. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Net cash cost           $

Answer 1

Average Collection Period	45	days
Collections	0.5	old
Collections	0.5	current
Average payable period	36	days
Payables	0.4	old
Payables	0.6	current
Particulars	Q1	Q2	Q3	Q4
Opening Receivables	63	72.5	82.5	92.5
Sales (in millions)	145	165	185	215
Collection of Accounts	135.5	155	175	200
Ending Receivables	72.5	82.5	92.5	107.5
Purchases	74.25	83.25	96.75	72
Ending Payables	70.65	79.65	91.35	81.9
Wages, Taxes And Others	27.1	33
Capital Expenditure
Interest and dividend	12	12	12	12
Total cash disbursement	109.75	124.65	103.35	93.9
Total cash collections	135.5	155	175	200
Net Cash Flow	25.75	30.35	71.65	106.1

Solution a-1

WILDCAT, INC.
	Q1	Q2	Q3	Q4
Beginning cash balance	40	40	40	40
Net cash inflow	25.75	-61.65	34.65	63.1
New short-term investments	-26.43		-34.638942	-62.4072212
Income from short-term investments	0.68	1.2086		-0.69277884
Short-term investments sold		60.43
New short-term borrowing		0.0114
Interest on short-term borrowing			0.000342
Short-term borrowing repaid			0.0114
Ending cash balance	40	40	40.0228	40
Minimum cash balance	-40	-40	-40	-40
Cumulative surplus (deficit)	0	0	0.0228	0
Beginning short-term investments	34	60.43	0	-34.638942
Ending short-term investments	60.43	0	-34.638942	-97.738942
Beginning short-term debt	0	0	0.0114	0
Ending short-term debt	0	0.0114	0	0

Solution a-2:

Net Cash Cost = Interest on short term investments + Income on Short term Borrowings

Net Cash Cost = 0.68+1.2086-0.000342+0.6928 = $2.58 millions

Solution b-1

WILDCAT, INC.
	Q1	Q2	Q3	Q4
Beginning cash balance	20	20	20	20
Net cash inflow	25.75	-61.65	34.65	63.1
New short-term investments	-26.83		-35.034702	-62.399306
Income from short-term investments	1.08	1.2166		-0.70069404
Short-term investments sold		60.83
New short-term borrowing		-0.3966
Interest on short-term borrowing			-0.011898
Short-term borrowing repaid			-0.3966
Ending cash balance	20	20	19.2068	20
Minimum cash balance	-20	-20	-20	-20
Cumulative surplus (deficit)	0	0	-0.7932	0
Beginning short-term investments	54	60.83	0	-35.034702
Ending short-term investments	60.83	0	-35.034702	-98.134702
Beginning short-term debt	0	0	-0.3966	0
Ending short-term debt	0	-0.3966	0	0

Solution b-2

Net Cash Cost = Interest on short term investments + Income on Short term Borrowings

Net Cash Cost = 1.08+1.2166-0.011898+0.7 = $2.98 millions