Question

1. Calculating the Cash Budget Wiggles, Inc., has estimated sales (in millions) for the next four quarters as follows: (40 ptos)

	Q1	Q2	Q3	Q4
Sales	$105	$90	$122	$140

Sales for the first quarter of the year after this one are projected at $120 million. Accounts receivable at the beginning of the year were $34 million. Wiggles, has a 45-day collection period.

Wiggle’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 30 percent of sales. Interest and dividends are $6 million per quarter.

Wiggles plans a major capital outlay in the second quarter of $40 million. Finally, the company started the year with a $32 million cash balance and wishes to maintain a $15 million minimum balance.

Complete a cash budget for Wiggles by filling in the following:

WIGGLES, INC. Cash Budget ($ in millions)
	Q1	Q2	Q3	Q4
Target cash balance	$15
Net cash inflow
Ending cash balance
Minimum cash balance	15
Cumulative surplus (deficit)

Assume that Wiggles 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. Prepare a short-term financial plan by filling in the following schedule. What is the net cash cost (total interest paid minus total investment income earned) for the year?

WIGGLES, INC. Short-Term Financial Plan ($ in millions)
	Q1	Q2	Q3	Q4
Target cash balance	$15
Net cash inflow
New short-term investments
Income from short-term investments

please present the calculations

Answer 1

Cash Budget for Wiggles, Inc. ($ in millions)
Quarter >	Q1	Q2	Q3	Q4
Beginning Cash balance	$32.00	$40.50	$10.10	$10.50
Target cash balance	$15.00	$15.00	$15.00	$15.00
Net cash inflow	$8.50	($30.40)	$0.40	$29.00
Ending cash balance	$40.50	$10.10	$10.50	$39.50
Minimum cash balance	$15.00	$15.00	$15.00	$15.00
Cumulative surplus (deficit)	$25.50	($4.90)	($4.50)	$24.50
WIGGLES, INC. Short-Term Financial Plan ($ in millions)
Quarter >	Q1	Q2	Q3	Q4
Target cash balance	$15.00	$15.00	$15.00	$15.00
Net cash inflow	$8.50	($30.40)	$0.40	$29.00
New short-term investments	$25.50			$24.50
Income from short-term investments	$0.51			$0.49
Short term Borrowing		$4.90	$4.50
Interest Cost		$0.15	$0.14
Net cash cost for the year	($0.72)	i.e. It is net cash interest earning.
{total interest paid minus total investment income earned}
Total interest paid	$0.28
Total investment income earned	$1.00
Calculations:
Cash Flow Statement for Wiggles, Inc. ($ in millions)
Quarter >	Q1	Q2	Q3	Q4
Sales	$105.00	$90.00	$122.00	$140.00
Collection from Debtors	$86.50	$97.50	$106.00	$131.00
Total Inflow	$86.50	$97.50	$106.00	$131.00
Less:
Purchases and payment to suppliers	$40.50	$54.90	$63.00	$54.00
Wages, taxes and other expenses	$31.50	$27.00	$36.60	$42.00
Interest & Dividends	$6.00	$6.00	$6.00	$6.00
Major Capital Outlay	$0.00	$40.00	$0.00	$0.00
Total Outflow	$78.00	$127.90	$105.60	$102.00
Net inflow / (Outflow)	$8.50	($30.40)	$0.40	$29.00
Note: Asssumed that sales are made uniformly through-out the quarter.
Note: Assumed that purchases of quarter are made in beginning and paid in the same quarter.