Question

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

	Q1			Q2			Q3			Q4
Sales	$	170		$	185		$	200		$	225

Sales for the first quarter of the year after this one are projected at $180 million. Accounts receivable at the beginning of the year were $71 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 25 percent of sales. Interest and dividends are $14 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $85 million. Finally, the company started the year with a $54 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. (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 enter your answers in millions, not dollars, rounded 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. Do not round intermediate calculations and enter your answers in millions, not dollars, rounded 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. (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 enter your answers in millions, not dollars, rounded to 2 decimal places, e.g., 32.16.)

      

b-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. Do not round intermediate calculations and enter your answers in millions, not dollars, rounded to 2 decimal places, e.g., 32.16.)

      

Answer 1

		COLLECTION DURING THE PERIODS	(Figures in $ million)
			Q1	Q2	Q3	Q4	First Qurter Next year
	A	Sales	$170	$185	$200	$225	$180
	B=A*(45/90)	Collection from the Sale of the quarter	$85.0	$92.5	$100.0	$112.5
	C	Collection from Sale of previous quarter	$71	$85.0	$92.5	$100.0
	D=B+C	Total collection during the Quarter	$156.0	$177.5	$192.5	$212.5
		PAYMENT FOR PURCHASES DURING THE PERIODS
		Purchases during last quarter of previous year	$76.50	(45%*170)
		Payment in First Quarter for last years purchase	$29.75	(35/90)*76.50
			(Figures in $ million)
			Q1	Q2	Q3	Q4	First Qurter Next year
	A	Sales	$170	$185	$200	$225	$180
	B	Purchases(45% of next quarters sales)	$83.25	$90.00	$101.25	$81.00
	C=B*(55/90)	Payment for purchases during the quarter	$50.88	$55.00	$61.88	$49.50
	D	Payment for purchases of previous quarter	$29.75	$32.38	$35.00	$39.38
	E=C+D	Total Payment for purchases	$80.63	$87.38	$96.88	$88.88
			(Figures in $ million)
		CASH BUDGET
			Q1	Q2	Q3	Q4
	A	Sales	$170	$185	$200	$225
	B	Beginning Cash Balance	$54	$40	$40	$40.00
	C	Cash Collection during the quarter	$156	$177.5	$192.5	$212.5
	X	Interest Received(2% on marketable securities)	$0	$0.66	$0.0	$0.19
	D=B+C	Total Cash Available	$210	$218.2	$232.5	$252.7
		Cash Payments:
	E	Payment for purchases	$80.63	$87.38	$96.88	$88.88
	F=A*25%	Wages , taxes and other expenses	$42.50	$46.25	$50.00	$56.25
	G	Interest and dividends	$14	$14	$14	$14
	H	Capital Outlay		$85
	I	Interest Payment(3% on borrowing)	$0	$0	$0.65	$0
	J=E+F+G+H+I	Total Cash Payments	$137.13	$232.63	$161.52	$159.13
	K=D-J	Excess/(Deficit) of Cash	$72.88	($14.47)	$70.98	$93.56
	L	Minimum Cash Balance	$40	$40	$40	$40
	M	Short Term Investment (made)/Liquidated	($32.88)	$32.88	($9.38)	($53.56)
	N	Amount Borrowed/(Principal paid back)	$0	$21.59	($21.59)	$0
	P	Ending Cash Balance	$40	$40	$40.00	$40.00