Question

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows: Q1 Q2 Q3 Q4 Sales $ 180 $ 200 $ 220 $ 250 Sales for the first quarter of the year after this one are projected at $195 million. Accounts receivable at the beginning of the year were $77 million. Wildcat has a 45-day collection period. Wildcat’s purchases from suppliers in a quarter are equal to 50 percent of the next quarter’s forecasted sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 25 percent of sales. Interest and dividends are $10 million per quarter. Wildcat plans a major capital outlay in the second quarter of $85 million. Finally, the company started the year with a $81 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 16 New short-term investments 17 Income from short-term investments 1 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

	Q1	Q2	Q3	Q4	Q1
Sales	180	200	220	250	195
Accounts Receivable	77
Collection period	45 days
Purchases	100	110	125	97.5
Payment period	36 days
Wages,Taxes and other expenses	45	50	55	62.5
Interest and Dividends	10	10	10	10
Capital outlay		85
Cash	81
Minimum Bal	40
Can borrow at 3% per quarter
Excess fund can earn at 2 % per quarter
Cash Inflow
Sales	128.5	190	210	235
Less: Purchases	60	106	119	108.5
Wages,Taxes and other expenses	45	50	55	62.5
Interest and Dividends	10	10	10	10
Capital outlay		85
Total Cash outflow	115	251	184	181
Net Cash Inflow	13.5	-61	26	54
45 day collection period means collection each quarter are half of current sales plus half of previous quarter sale
36 day payable means 3/5th of current quarter +2/5th of old quarter
Wildcat, Inc Shor Term Financial Plan
	Q1	Q2	Q3	Q4
Beginning Cash Bal	40.00	40.00	40.00	40.00
Net cash inflow	13.50	-61.00	26.00	54.00
New Short-term investments	14.52		21.50	48.50
Income from short-term investments	1.02	1.11	-	0.43
Short-term investments sold	-	55.52	-
New short-term borrowing
Interest on short term borrowing		-	0.13	-
Short Term borrowing repaid		-	4.37
Ending cash balance	40.00	35.63	40.00	45.93
Minimum Cash Balance	40.00	40.00	40.00	40.00
Cumulative surplus deficit	-	4.37	-0.00	5.93
Beginning Short Term Investments	41.00	55.52	-	45.07
Ending short term investments	55.52	-	21.50	93.57
Beginning short term debt	-	-	4.37	-
Ending short term debt	-	4.37	-	-
What is the net cash cost (Total Interest Paid minus total investment income)?
Total Interest Received	2.56
Less : Interest Paid	0.13
Net Cash Cost	2.43
Wildcat, Inc Shor Term Financial Plan
	Q1	Q2	Q3	Q4
Beginning Cash Bal	20.00	20.00	20.00	20.00
Net cash inflow	13.50	-61.00	26.00	54.00
New Short-term investments	14.32		21.29	54.43
Income from short-term investments	0.82	1.11	-	0.43
Short-term investments sold	-	55.32	-
New short-term borrowing		4.57
Interest on short term borrowing		-	0.14	-
Short Term borrowing repaid		-	4.57
Ending cash balance	20.00	20.00	20.00	20.00
Minimum Cash Balance	20.00	20.00	20.00	20.00
Cumulative surplus deficit	-	-	0.00	-
Beginning Short Term Investments	41.00	55.32	-	45.07
Ending short term investments	55.32	-	21.29	99.50
Beginning short term debt	-	-	4.57	-
Ending short term debt	-	4.57	-	-
What is the net cash cost (Total Interest Paid minus total investment income)?
Total Interest Received	2.35
Less : Interest Paid	0.14
Net Cash Cost	2.21