Question

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

	Q1			Q2			Q3			Q4
Sales	$	105		$	125		$	145		$	175

Sales for the first quarter of the following year are projected at $120 million. Accounts receivable at the beginning of the year were $47 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 forecast sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 20 percent of sales. Interest and dividends are $11 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $60 million. Finally, the company started the year with a $66 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. Negative amounts 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.)

        

a-2.	What is the net cash cost 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.)

        

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. Negative amounts 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.)

        

b-2.	What is the net cash cost for the year under this target cash balance? (Enter your answer in millions. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

        

Answer 1

PART-a

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Opening Balance	$      66.00	$      40.00	$      40.00	$      61.60
Cash Inflow
Sales	$      52.50	$      62.50	$      72.50	$      87.50
Accounts Receivable received	$      47.00	$      52.50	$      62.50	$      72.50
Interest Received @2%	$            -	$        1.20	$        1.20	$        1.20
Total Cash Inflow	$      99.50	$    116.20	$    136.20	$    161.20
Cash Outflow
Purchases	$      33.75	$      39.15	$      47.25	$      32.40
Accounts Payable paid	$            -	$      22.50	$      26.10	$      31.50
Wages Taxes and Other Expenses	$      21.00	$      25.00	$      29.00	$      35.00
Interest and Dividends	$      11.00	$      11.00	$      11.00	$      11.00
Capital Outlay	$            -	$      60.00	$            -	$            -
Interest Paid on Borrowings @3%	$            -	$            -	$        1.24	$        1.24
Total Cash Outflow	$      65.75	$    157.65	$    114.59	$    111.14
Balance	$      99.75	$       -1.46	$      61.60	$    111.65
Borrowing to maintain minimum balance		$      41.46
Deposited in Bank	$      59.75
Closing Balance	$      40.00	$      40.00	$      61.60	$    111.65

Notes:

1.Assumed that sales and purchases are evenly spread.

2. Accounts receivable of Quarter are received in the next quarter.

3. Accounts payable of Quarter are paid in the next quarter.

4. Interest on Deposit @2% and not withdrawed in next quarters.

5. Interest on borrowing @3% and not repaid during the year.

b.

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Opening Balance	$      66.00	$      20.00	$      20.00	$      42.01
Cash Inflow
Sales	$      52.50	$      62.50	$      72.50	$      87.50
Accounts Receivable received	$      47.00	$      52.50	$      62.50	$      72.50
Interest Received @2%	$            -	$        1.60	$        1.60	$        1.60
Total Cash Inflow	$      99.50	$    116.60	$    136.60	$    161.60
Cash Outflow
Purchases	$      33.75	$      39.15	$      47.25	$      32.40
Accounts Payable paid	$            -	$      22.50	$      26.10	$      31.50
Wages Taxes and Other Expenses	$      21.00	$      25.00	$      29.00	$      35.00
Interest and Dividends	$      11.00	$      11.00	$      11.00	$      11.00
Capital Outlay	$            -	$      60.00	$            -	$            -
Interest Paid on Borrowings @3%	$            -	$            -	$        1.23	$        1.23
Total Cash Outflow	$      65.75	$    157.65	$    114.58	$    111.13
Balance	$      99.75	$    -21.06	$      42.01	$      92.48
Borrowing to maintain minimum balance		$      41.06
Deposited in Bank	$      79.75
Closing Balance	$      20.00	$      20.00	$      42.01	$      92.48

Notes for a &b

Calculation of perday sales

	Q1	Q2	Q3	Q4
Sales	$ 105.00	$ 125.00	$ 145.00	$ 175.00
Per day Sales Sales/90days	$     1.17	$     1.39	$     1.61	$     1.94
Purchases	$   56.25	$   65.25	$   78.75	$   54.00
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